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Heum, Per; Ylä-Anttila, Pekka; Braunerhjelm, Pontus; Thomsen, Steen

Working Paper Firm Dynamics in a Nordic Perspective: Large Corporations and Industrial Transformation

IUI Working Paper, No. 401

Provided in Cooperation with: Research Institute of Industrial Economics (IFN), Stockholm

Suggested Citation: Heum, Per; Ylä-Anttila, Pekka; Braunerhjelm, Pontus; Thomsen, Steen (1994) : Firm Dynamics in a Nordic Perspective: Large Corporations and Industrial Transformation, IUI Working Paper, No. 401, The Research Institute of Industrial Economics (IUI), Stockholm

This Version is available at: http://hdl.handle.net/10419/94736

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No. 401, 1993 FffiM DYNAMICS IN A NORDIC PERSPECTlVE: Large corporations and industri al transformation by Per Heum, Pekka Ylä-Anttila, Pontus Braunerhjelm and Steen Thomsen*

* Per Heum, SNF, Bergen, Pekka Ylä-AnttiIa, ETLA, Helsinki, Pontus Braunerhjelm, IUI, Stockholm and Steen Thomsen, CBS, Copenhagen.

November 1993

PoItadress Gatuadress Telefon Bankgiro . Postgiro Bpx 5501 Industrihuset 08-783 80 00 446-9995 191592·5 11485 Stockholm Storgatan 19 Telefax 08-6617969 DEUM, Per and YLÄ-ANTTILA, Pekka, FIRM DYNAMICS IN A NORDIC PERSPEC­ TIVE - LARGE FIRMS AND INDUSTRIAL TRANSFORMA nON. Helsinki: ETLA. Elin­ keinoelämän Tutkimuslaitos, The Research Institute of the Finnish Economy, 1993. 112 p. (B, ISSN 0356-7443~ No 487). ISBN 951-9206-96-5 and 82-7296-386-8.

The study looks at the 30 largest industri al companies in each of the Nordic countries: their growth, internationalization, transformation and role in macroeconomic developments. These firms hold significant positions in their domestic economies. Furthermore, the largest companies at one point in time tend to keep their position as dominant firms over rather long time periods. Hence, a rather small number of large corporations is sufficient to produce effects of significance to the industri al and macroeconomic developments in their countries of origin.

The role of the largest industri al firms has increased over the last 10-15 years with respect to all variables studied: employment, output, foreign operations and R&D activities. The contribution of these companies has been particularly important when considering the growing internationaliz­ ation and knowledge intensity of the Nordic industries.

KEY WORDS: Corporate growth, internationalization of business, Industri al transformation, Nordie economies. YHTEENVETO l. INTRODUCTION l

2. NORDIC MANUFACTURlNG - AN INDUSTRY LEVEL 4 BACKGROUND

3. ANAL YZING INDUSTRIAL TRANSFORMAnON 10 3.1 Shortcomings in Industry Level Analysis ...... , ...... 10 3.2 Firms and Industrial Dynamics ...... Il 3.3 Current Trends in Industrial Transformation ...... 15 3.4 Questions to Be Addressed in the Report ...... 23

4. DEFINmONS AND DATA ON LARGE NORDIC FIRMS 25 4.1 Problems in Defining Manufacturing and Firms ...... 25 4.2 The Data Base on Large Nordic Firms ...... 26 4.3 Problems Regarding the Data Base ...... 27 4.4 The Largest Corporations of the Nordic Countries ...... 29 4.5 Large Nordic Corporations in an International Penpective ...... 34

5. INDUSTRIAL TRANSFORMA TION AND LARGE FIRM 37 PERSISTENCE 5.1 Stability in Rankings, 1974-1990 ...... 37 5.2 Penistence of Large Firms in a 50-Year Penpective ...... 46

6. THE GROWTH AND TRANS FORMA TION OF LARGE NORDIC 53 FIRMS 6.1 Corporate Growth ...... 53 6.2 Internationalization of Business ...... 59 6.2.1 The Internationalization of the Largest Firms ...... " 59 6.2.2 The Largest Firms Have Primarily Grown Abroad ...... 63 6.2.3 Foreign Ownenhip Controi of Large Nordic Firms ...... 66 6.3 Industrial Competence and Competitiveness ...... 69 6.3.1 Investments in R&D of the Largest Firms ...... 69 6.3.2 R&D and the Internationalization of Firms ...... 71

7. LARGE NORDIC FIRMS IN DOMESTIC MANUFACTURING 74 7.1 Output and Growth ...... 74 7.2 Internationalization and R&D Activities ...... 82 7.3 Is Large Firm Dominance a Small Country Phenomenon? ...... 85

8. CONCLUDING REMARKS: INDUSTRIAL TRANSFORMAnON AND 88 THE ROLE OF LARGE FIRMS

REFERENCES 93

APPEND IX l: The Large Firm Data Base: Variables and Data Coverage

APPENDIX 2: World-wide Employment of the Largest Firms

APPENDIX 3: Domestic Employment of the Largest Firm

APPENDIX 4: Mean Employment of the Largest Firms YHTEENVETO

Tutkimus on osa pohjoismaisen yhteistyöryhmän (Nordie Perspective Group, NPG) tutki­ musohjelmaa. Yhteistyöryhmä, johon kuuluvat ETLA, IFF (Kööpenhamina), fUl (Tukholma) ja SNF (Bergen), on aiemmin julkaissut useita Pohjoismaiden taIoudellista rakennetta ja tulevaisuuden näkymiä koskevia raportteja. Tämä tutkimus keskittyy ta­ louden mikroperustaan, suuryrityksiin ja niiden rooliin kansantaloudessa. ETLAssa pro­ jekti liittyy yritystalouden ja teoknologian tutkimuksen ohjelmiin.

Tutkimuksessa tarkastellaan 30 suurimman teollisuusyrityksen kasvua, kansainvälisty• mistä ja kokonaistaloudellisia vaikutuksia kussakin Pohjoismaassa. Suuryritysten rooli on kaikissa vertailumaissa merkittävä: 30 suurimman teollisuusyrityksen kotimaisen työllisy• yden osuus koko teollisuuden työvoimasta on Suomessa noin SO %, Norjassa ja Ruotsissa runsas kolmannes ja Tanskassakin viidennes. Lisäksi suurimpien yritysten merkitys on kasvanut selvästi viimeisten lO-IS vuoden aikana.

Suuryritysten tuotannon ja työllisyyden kasvu on ollut tuntuvasti nopeampaa kuin teolli­ suuden kasvu keskimäärin. Suuret yritykset ovat kuitenkin kasvattaneet pääosin ulkomai­ sia toimintojaan. 30 suurimman teollisuusyrityksen kotimainen työllisyys on supistunut kaikissa Pohjoismaissa 1970-luvun lopulta alkaen. Työllisyyden supistuminen on kuiten­ kin ollut aina 1980-luvun lopulle saakka suuryritysten ryhmässä vähäisempää kuin teolli­ suudessa keskimäärin: yritysten voimakas kansainvälistyminen ei siten pääsääntöisesti ole syrjäyttänyt kotimaista työllisyyttä. Kuitenkin 1980-luvun lopussa tilanne näyttää muuttu­ neen varsinkin Ruotsissa. Suurimpien ruotsalaisten teollisuusyritysten kotimaisen työvoi• man määrä väheni selvästi teollisuuden keskimäärää nopeammin ja vastaavasti ulkomaisen työllisyyden kasvu kiihtyi. Suomessa ja Norjassa muutokset olivat saman­ suuntaisia, mutta vähäisempiä. Suomalaisten suurten teollisuusyritysten kansainvälistyminen oli 1980-luvulla nopeampaa kuin norjalaisten ja ruotsalaisten. Vuonna 1990 jo noin 50 % kymmenen suurimman ja noin 40 % kolmenkymmenen suurimman teollisuusyrityksen työntekijöistä työskenteli ul­ komaisissa tytäryrityksissä. Nopeasta kasvusta huolimatta osuudet ovat tuntuvasti pie­ nempiä kuin ruotsalaisten suuryritysten :ryhmässä, jossa ullmmaisen työvoiman osuus koko henkilökunnasta on noin kaksi kolmannesta. Suomalaisten yritysten kansainvälity• misen taso on jokseenkin sama kuin ruotsalaisten 1970-luvun puolivälissä. Norjassa suurten yritysten kansainvälistyminen on ollut jonkin verran hitaampaa kuin Suomessa.

Suuryritysten :ryhmä näyttää olleen hyvinkin pysyvä kaikissa Pohjoismaissa. Yritykset ovat viimeisten 10-15 vuoden aikana pitkälti säilyttäneet keskinäisen suurjärjestyksensä. Myös pitkällä aikavälillä suuryritysten joukko on pysynyt hyvin samankaltaisena: noin kaksi kolmannesta yrityksistä, jotka viisikymmentä vuotta sitten olivat 30 suurimman jou­ kossa on tässä :ryhmässä edelleen.

Suuryritysten rooli on erityisen merkittävä suurta riskinottoa vaativissa toiminnoissa, kuten tutkimus- ja kehitystoiminnassa sekä kansainvälisissä toiminnoissa. 30 suurinta teollisuusyritystä vastaa kussakin maassa lähes kokonaisuudessaan teollisuuden kan­ sainvälisistä operaatioista. Myös T&K-toiminnassa suuryritysten merkitys on selvästi niiden tuotanto- ja työllisyysosuuksia suurempi. FOREWORD

The Nordic Persepctive Group (NPG) is a cooperating venture of the research insti­ tutes ETLA (Finland), IFF (Denmark), lUI (Sweden) and SNF (Norway). In several publications this group has discussed the prospects of the Nordic economies by elab­ orating on the industrial base in the region. There has, however, been a lack offlrm level data in these analyses, and the NPG has encouraged work to flll this gap. A pro­ ject team was set up to focus attention specijically on the large industrial flrms of the different Nordic countries.

Pontus Braunerhjelm (IUI), Per Heum (SNF), Steen Thomsen (IFF) and Pekka Ylä-Anttila (ETLA) have formed the team. H eum and Ylä-Anttila have been in charge of the work. Each researcher has been responsible for providing data on the largest flrms for their respective countries. This work has been undertaken on the basis of national funding: in Denmark, Finland and Sweden mainly from the cooperating re­ search institutes or from the researchers themselves, and in Norway additionally from the Norwegian Research Council for Applied Social Science (NORAS). The Nordic Economic Research Council (NEF) hasfunded part of the costs ofbringing these data together for a comparative presentation at the Nordic level. This report responds to this task by presenting a descriptive analysis of the business development and the role oflarge industrial corporations in the Nordic economies.

Per Heum and Pekka Ylä-Anttila have been responsible for writing this report. Pon­ tus Braunerhjelm and Steen Thomsen have commented on the approach and the manuscript at different stages of the work. We hope to continue this cooperation through more extensive studies on firm dynamics, industrial transformation and the role oflargefirms. Maarit Säynevirta has done a tremendous job in keeping track of all the data and by preventing confusion from our repeated efforts to reexamine the comparabi/ity of the data. She has also compiled the tables and figures that are presented in this publica­ tion. We are grateful for her patience and her professionai work. We also greatly ap­ preciate the work undertaken by Trond Hammervoll and by Jyrki Ruulu. They have both contributed signijicantly to the progress of this project. We also want to ac­ knowledge the contributions of Antti Ripatti, Klaus Walderhaug, Soren Jensen and Göran Johansson-Grahn, all of whom have been involved in different stages of the project work. Finally, the work has benefitted from discussions at several joint meet­ ings of the Nordic Perspective Group.

Bergen/Helsinki, November 1993

Per Heum and Pekka Ylä-Anttila 1. INTRODUCTION

Industrial transfonnation should be considered essential for the prospects of economic growth in any country. This has been the base line for the current study, as it has been for previous publications from the Nordic Perspective Group comparing the structure and pattems of development in the Nordic economies mainly at the industry levet (ETLA et.al. 1984; 1987; 1990). However, in these publications it is also advocated that to understand industrial transfonnation and economic growth, we need a micro­ based approach applying finn level data. The present study complies to this task. Huge efforts have been taken to collect fInn-Ievel data, in this fust stage by consider­ ing the sample of the 30 largest industrial fInns in each of the four Nordic countries: Denmark, Finland, Norway and Sweden.

The general idea underlying this wo~k has been that infonnation on the largest indus­ trial corporations may provide the necess8.l)' microeconomic foundation for analyzing industri al transfonnation and macroeconomic growth. There is undoubtedly a direct linkage between the development of the largest corporations and considerations at the micro level of the economy. At the same time we argue that the industrial magnitude of a rather small number of large corporations is sufficient to produce effects of sig­ nificance to the industri al and macroeconomic development in their countries of ongm.

This idea of linking infonnation on large finns to macroeconomic considerations is by no means new. When, for instance, predictions of future investment levets are to be made, or when documenting the financial situation within the business sector, public authorities frequently collect infonnation from the largest domestic fInns. This ap­ proach is also significantly extended and fonnalized in the micro-to-macro model (MOSES) on the Swedish economy at IDI: Economie growth is modelled to build on 2 ftnn (microeconomic) behaviour, which in tum is restricted and influenced by ensuing macroeconomic feedbacks (see Eliasson, 1985).

There is, however, still a need to docwnent the relevance of such an approach, and to improve its design. This report contributes to the former of these tasks. With informa­ tion from only the 30 largest corporations of each country we argue that macroeco­ nomic relevance is as sure d, and we apply it to illustrate current pattems of industrial development. At this stage we mainly present an extensive descriptive analysis, since we want to give a comprehensive picture of the large fmn data base which never be­ fore has been used in a joint Nordie study.

The industry focus of this report is on manufacturing as the prime industri al source for long-term growth. This is clearly reflected in the economic development of Denmark, Finland and Sweden. Norway forms a slight exception as international transport ser­ vices in shipping were an important factor in Norway's economic development until the early 1970s, while extraction of oil and natural gas has provided the most import­ ant growth impulses over the last two decades. Looking beyond 2000, however, manufacturing will undoubtedly be extreme ly decisive for the economic development of all these countries. This is the reason why we have included Chapter 2 which swn­ marizes the industry level background of Nordic manufacturing.

Then, in Chapter 3 we discuss shortcomings of the industry level approach when ad­ dressing the issue of industri al transformation. The dynamic features of industrial transformation have to be addressed at the fmn level. The fmn concept is not. how­ ever, trivial in the fteld of economics. Thus, we briefly consider this theoretical issue before we elaborate on fmn behaviour and current trends in the development of business.

These theoretical considerations do not represent any attempt to formulate hypotheses on which formal empiricaI testing may be conducted. Rather it works as a guide-line 3 for a stoI)'telling type of report, where we apply data we have gathered on the largest industrial corporations of different Nordie countries to illustrate trends in Nordie busi­ ness development and their macroeconomic impacts. Chapter 4 presents our data, the defmitions we have applied, and the actual corporations that have been chosen accord­ ing to our selection criteria.

Then, Chapter 5 addresses the stability in ranking among the largest fIrms, and the persistenee of size of the large fums. More precisely our focus is on changes in the groups of the largest corporations, i.e. to what extent the large fums of one period have been surpassed by more rapid growth of other fums.

In Chapter 6 we discuss the growth and transformation of the large Nordie corpor­ ations. We focus on employment, on the intemationalization of business, and on R&D activities.

Chapter 7 addresses the role of the largest corporations at the macroeconomic level of the Nordic economies. We focus on their growth pattem with respect to growth in do­ mestic manufacturing. Then we consider their share of economic activities domesti­ cally and whether this has been increasing or decreasing over the last two decades. Furthermore, we briefly discuss the impacts of intemationalization on domestic pro­ duction, and the role of large corporations in domestic business communities. Chapter 8 summarizes the report and introduces the direction of our future research. 4

2. NORDIC MANUFACTURING - AN INDUSTRY LEVEL BACKGROUND

The composition of manufacturing production varies between the Nordie countries. Briefly, the main features of manufacturing in the different countries may be summar­ ized as follows:

In Denmark export oriented manufacturing is mainly made up of foodstuff in­ dustries and more sophisticated engineering. The Danish manufacturing sector has traditionally been small and dominated by small companies. It has, however, been ar­ gued that Danish fInns are too small to enter the integrating European market (Thomsen, 1990).

In Finland manufacturing exports mainly stem from the pulp and paper industry, and from the engineering industry, which has shown significant growth. The large corporations have been intemationalizing very rapidly during the past few years and domestic manufacturing investments have remained on a relative ly low level. The dominance of large corporations in the industrial structure has probably increased, but it is evident that agreater contribution of these fInns can be seen in foreign direct in­ vestment and other foreign operations (Kajaste, Parviainen and Ylä-Anttila, 1992).

In Norway exports of crude oil and natural gas dominate the export picture fol­ lowed by manufacturing exports from energy-intensive industries applying hydroelec­ tric power. Large fInns operate in the se industries, while small business historically has dominated other parts of manufacturing. The traditionally strong contribution of small business to industri al production has, however, diminished and large corpor­ ations have been argued to be responsible for the bulk of economic growth in recent years (Berrefjord, Heum and Tvedt, 1990). 5

In Sweden manufacturing has for long been dominated by 30-40 large companies, mainly based in the metal and engineering industry. Swedish industry is in relative terms probably the most internationalized in the world (Swedenborg et al.,1988). The largest Swedish corporations are giants compared to other Nordic companies (Oxelheim, 1984; ETLA et al., 1990). Contrary to the other Nordie countries, there is a host of Swedish studies on the role of large companies and their contribution to ma­ croeconomic performance in Sweden (Swedenborg, 1973, 1979, 1982; Swedenborg et al., 1988; Eliasson , 1984). In general, the results of these studies show that the ma­ croeconomic impacts of international operations on exports, and on domestic growth, productivity and employment have been positive. However, some recent studies have questioned the positive cntributions to exports (Svensson, 1993), and whether the on­ going surge in cross-border mergers and acquisitions by the large industrial com­ panies is leading to a too narrow and structurally unfavorable production capacity in Sweden (Braunerhjelm, 1990).

Tuming to the development of manufacturing, it is a common feature of all Nordic economies that the manufacturing sector has been shrinking relatively. According to Figure 2. l, the share of manufacturing - as conventionally defmed - in total output has shown a declining trend since the 1970s. The industri al countries in general exhibit the same trend, but the Nordic shares are clearly below the OECD Europe average. 6

Figure 2.1 Share of manufacturing output in total GDP, 1950-1991. Per cent.

% OECD-Europe 35 ...... '.' ...... Sweden

30 .. ,:\ . Finland : ' .. , ..•..•.. - 25 ...... Derunark

Norway ...... ~...... ~ . . -.. .."...... \..:...... 15 .. :...... :'. ..;;.;.... '" ·~t~!" . ....

1960 1970 1980 1990

Source:OECD

Since 1950 the manufacturing growth have varied substantially across the Nordic economies and over time. Figure 2.2 illustrates this by showing the annual volume of manufacturing output in the Nordie countries and in the OECD. 7

Figure 2.2 Manufacturing output in the Nordic countries and OECD, 1950-1993. 1950=100.

ind 800~------~------~------~------~~ FWaoo 700 '.. -- .. - .:. - . ---- .: .. ----- .: - . - . - . - -'. -- - OECD

--

1960 1970 1980 1990

Source: OECD

These differences in growth rates are more c1early read from table 2.1, where average annual growth rates are calculated for different periods.

Table 2.1 Manufacturing output in the Nordic countries and OECD, 1950-1993. Annual average change in volume. Per cent.

OECD Denmark Finland Norway Sweden 1950-65 5,6 4,4 5,9 4,2 .s, 3 1965-74 5, l 4, l 6,7 4,6 4,4 1974-90 2,7 2,9 3,0 0,3 0,9 1990-93 2,8 4, l -2,4 1,6 -1,4 1950-93 4, l 3,7 4,4 2,6 2,9

Source:OECD 8

Finland is the only of these Nordic countries where manufacturing growth since 1950 in general has exceeded the OECD average. Since 1990, however, the growth per­ formance of Finnish manufacturing has been very poor. The pace of growth in Swedish and Danish manufacturing picked up somewhat in the early 1980s. Sweden has, however, slowed down again, while Danish manufacturing has exhibited fairly rapid growth compared to the Nordic average after a short downswing in the late 1980s. In Norway, manufacturing growth has generally been below the OECD aver­ age, and since the mid-1970s hardly any growth has been recorded at all.

There was a general trend throughout the 1980s for all these countries that domestic fInns absolutely and relatively increased theiI foreign direct investments. This increase in foreign direct investments has to a large extent been directed towards the EC countries (Braunerhjelm, 1990; Karlsen, 1991). Foreign direct investments are mainly made up of investments conducted by domestic manufacturing, with the exception of Norway where the producers of international shipping services and of oil and natural gas also hold a signifIcant share. It is uncertain how this investment pattern affects fu­ ture growth of domestic manufacturing.

Another general trend in the investment pattern of Nordic manufacturing is the abso­ lute and relative increase in the level of intangible investments. An indication is R&D expenditures in manufacturing, which have increased significantly compared to the leve l of flXed investments in all Nordic countries (ETLA et.al., 1990). Finnish manu­ facturing fInns have in parti cul ar been expanding their R&D activities throughout the 1980s. The level of R&D is, however, clearly the highest in Sweden.

At the same time technical change - notably the new flexible technologies - have heav­ ily impinged on industri al organizations and company structures of the N ordic econ­ omies (Ylä-Anttila and Lovio, 1990). The average size of establishments has been decreasing in several manufacturing industries, while the bulk of these industri al cat­ egories show that the share of value added to the sales value of production has 9 decreased (Hammervoll and Heum, 1992). Thus, in certain lines of production there seems to be a trend of scaling dovvn production as further specialization is required to stay competitive in more flexible production arrangements within industri al networks.

These trends of intemationalization, of more knowledge-intensive production, of de­ scaling production and of flexible manufacturing are general phenomena affecting manufacturing all over the world. The weak average growth in manufacturing output, as recently experienced by most Nordie countries, is not, however, a world-wide trend. From a Nordie point of view this makes it increasingly important to examine how the industri al transformation that is going on will affect the future of these countries. N either the processes leading to these changes nor their implications for fu­ ture wealth can, however, be fully grasped at the industry level. 10

3. ANAL YZING INDUSTRIAL TRANS FORI\1.A TION

3.1 Shortcomings in Industry Level Analysis

Data at the industry leveloriginates from adding together information on domestic es­ tablishments whose production is classified as belonging to the same industry group. In addition to the problem that we frequently lack data on matters which are of import­ ance to illustrate changes in the creation of value, there are certain obvious shortcom­ ings in industry level data when we want to analyze industri al transformation.

Our problem concerns the fact that information on establishments is simply not aggre­ gated to the fum as on organizational unit authorized to make major strategic moves. Furthermore, fums are no static entities but continuously subject to reorganization. Service production, for instance, is increasingly conducted in separate units within a finn. Operations which previously were conducted in one establishment, may now be undertaken in several establishments classified as belonging to different industries. This will cause changes in the recorded activity levels in the se industries without re­ flecting real changes in the economy, only different ways of registering operations that always have been conducted. Thus, recorded changes at the industry leve l is becoming hard to interpret as fums move their operations across industries.

Another major problem is that industry level data is based on domestic production, whereas fums carry out production internationally. Thus, real fums will act according to how they consider their world-wide interests. Industry level data misses this as it is only shown how changes are taking place in industries in separate countries.

When applying industry level data to elaborate on fum behaviour, other problems arise. It is quite common to construct an artificial fum by calculating industry aver­ ages. However, the average fum is not a fum as we know it in the real world. This method of calculating average fums does not make any sense in analysis of industrial 11 transfonnation. It assumes all finns within one industry to be equal, while it is the dif· ferences in effIciency and competitiveness which cause industrial transfonnation.

This means that finn level data is needed to analyze the processes of industri al trans­ fonnation, simply because it is hard to grasp the underlying driving forces of these processes at the industry level. Finn level data should also facilitate evaluation of growth prospects at the national level. For instance, national wealth is increasingly being affected by the intemationalization of finns. Many assets, like management, technological skills and skilled labour, are becoming more mobile. Reloeations of activities intemationally within fmns may lead to major ehanges in national economie structures. Thus, the interplay between the competitive advantages of eountries and those of fmns ought to be one of the key issues in industrial and eeonomic polieies.

3.2 Firms and Industrial Dynamics

In a dynamic economy there is a continuous restructuring of the business community. Old companies grow and ehange or they divest and elose down. Simultaneously, new companies are established; they fail or sueeeed, either growing as independents or being aequired by other fmns. This kind of fmn dynamics is the very foundation for industrial transfonnation. Finns are subject to eontinuous ehange, and industri al oper­ ations ehange with them. This pertains to economie growth as weIl. The introduction of innovative and competitive entries are shown to be of vital importanee for stable and strong eeonomie growth in the long ron (Eliasson, 1991).

The establishment of new fmns is undoubtedly a major driving foree in the growth process in the very long ron. On the other hand, it is the group of existing fmns that is responsible for the bulk of aggregate output and employment growth in the short and medium tenn, and which aIso eontributes the most to the growth changes in the econ­ omy over sueh time horizons (Kristiansen, 1992). Thus, reorganisations within 12 existing fmns, their internally generated growth, and externaI expansion of their busi­ ness through mergers and acquisitions, should be regarded as essentiai parts of finn dynamics and industrial transformation, and also for long-term economic growth. The introduction of innovative and competitive entries is taken care of within existing fmns, as weIl as through the establishment of new fmns.

In essence this me ans that industri al transformation is the result of minor and major in­ novations and their diffusion. It takes primarily place through the competitive pres­ sure put upon fmns to exploit and develop business opportunities offered by changes in technology and markets, which also may lead to the entry and exit of fmns. Then, the dynamics of industri al transformation simply means to understand the growth of fmns and growth differentials between fmns. This is, however, no trivial issue in the economic literature.

Even the fmn as such is considered quite differently in economics. According to neo­ classical models fmns only react passively to external stimuli, i.e. to changes in price information. They have no internal organization nor external relations other than those related to price information. The fmn's existence or organization simply has no role in this theory, since the purpose is not to explain the behaviour of fmns, but to explain and predict ch anges in observed prices (Machlup, 1967). The fmn described in neoclassical economic theory is something very different from the business organiz­ ations we observe and on which we can get information.

If we want to look at the growth of fmns and changes in their market positions, we have to adopt another concept of the fmn. The modem corporation has a multitude of goals which they try to reach by strategic manoeuvres. This active aspect of finn be­ haviour is needed if we want to raise questions about the bounderies, the size and the growth of fmns. It is also needed when we want to look at the fmns as parts of national economies. Evidently fmns tend to grow differently and reach different li­ mits to their size depending on their national economic environment or home base. 13

It is our point of departure that finns attempt to modify and remove constraints in order to generate profit, rather than being profit max.imizers within given constraints. Research and development, product differentiation, mergers and acquisitions as well as strategic foreign direct investments are all different fonns of active constraint-mo­ difying behaviour.

When considering growth and growth differentials between fums, the standard as­ sumption that scale economies in production determine the size, and that new technol­ ogy may ch ange the economies of scale, is not sufficient. It might be that there are scale economies at the level of plants (in production), but not at the level of a fum. As fum size increases, the economies of scale may tum into diseconomies due to higher controI and monitoring costs. On the other hand the scale economies are often argued to relate more to other activities than production, name ly to ftnancing, marketing, and R&D (Eliasson, 1991, shows that only a small proportion of the resources in large manufacturing fInns are devoted to the production of goods). Hence, size differences and growth differentials may also be attributed to unequal capabilities within fInns to exploit such scale economies, and to identify and take advantage of these in their markets.

Besides the seminal work of Penrose (1959), most interesting perspectives on the growth of fums are found in theories on the intemationalization of fInns (see, for in­ stance, Hymer, 1976; Caves, 1971, 1982; Dunning, 1981, 1988). They argue that fums grow internationally due to a lack of markets for fum-specific assets. Owner­ ship advantage is the key concept. Since the exploitation of this fum-specific asset might b-e eroded in tradition al trade arrangements, as exports and licencing, fums tend to intemalize production by establishing foreign subsidiaries. The possesion of fum-specific assets simultaneously provide an advantage which allows the fum to overcome problems associated with operations in foreign markets. 14

Finn-specific assets may occur when products are differentiated either by research and development or by advertising. That leads to horizontal foreign direct investment. Sirnilarly, fmns in concentrated markets may grow through foreign direct investments in order to utilize their management capabilities when the expansion of output in the home marketis limited. Furthermore, high home market concentration will encourage foreign direct investments if the essential raw material is located abroad.

Hence, the growth of fmns may in general be connected to the existence of some fmn-specific, rent-yielding asset which provides the basis for a profitable expansion of production. Others have also more recently emphasized the feed backs of experi­ ence from production, markets and business operations on the upgrading and cultiva­ tion of this fmn-specific asset. Thus, the process of technology accumulation from which a fmn creates its competitive strength, may also explain why fmns grow, or invest abroad (Cantwell, 1989), for instance to assure its presence in global technol­ ogy centers of importance to the businesses in which it is engaged (Chesnais, 1992).

This active behaviour of fmns is obviously the very precondition for the field of stra­ tegic management. In this perspective, fmn behaviour is governed by the strategic concerns of a fmn: What shall it produce, and in what lines of business should it be engaged? To what extent cooperation between different lines of businesses is to be promoted? What competitive strategies are the most forceful to pursue? How shall it design and organize its span of controi, and to what extent shall the operations of dif­ ferent activities and business engagements be coordinated administratively?

In the literature on business strategy, it is often deemed worthwhile to make a concept­ ual distinction according to the aggregate level at which business is organized. The purpose of business is to create value. Value creation, however, is organized in en­ tities at different levels of aggregation, which is illustrated by the different content of concepts like "the single-unit fmn" and "the multi-unit finn". 15

Competition occurs at the disaggregate business unit levet between strategic business units (SBV). The prime strategic concern of a SBV is its competitiveness. Thus, it is at this disaggregate leve} competitive strategies ought to be implemented (Porter, 1987).

A business unit may be independent (the single-unit fum) or be part of a constellation of several SBVs, fonning a corporation or a multi-unit fum. The corporation repre­ sents another strategic level at which production and business is organized. The pur­ pose of a corporate strategy is to strengthen the competiveness of its SBVs, i.e. a SBV shall be more competetive within a corporation than it would have been as an indepen­ dent fum (Salter and Weinhold, 1978). This may be achieved by organizing relations between the corporate level and the SBVs, and between the SBVs of the corporation. If the se relations do not contribute to competitive advantages for the SBVs, there is no economic justification to keep them within the same corporation (Porter, 1987).

3.3 Current Trends in Industrial Transformation

When elaborating on current trends regarding industrial transformation, our discussion is very much based on how the finn is conceived in the strategic management litera­ ture. Then we have to bear in mind that strategic concerns vary between the corpor­ ate and the SBV levet of a fum, as weil as between finns depending on the businesses in which they are engaged and the business environments in which they operate. Ch anges in the business environment are crucial for understanding strategic recon­ siderations and changes in fum behaviour. The implementation of strategies is then assumed to be decisive for the development of business and hence for industrial re­ structuring and economic performance at both the microeconomic and macroeconomic level of the economy (Rumelt et al., 1991). 16

Since the 1970s two major forces of change have produced significant effects on the competitive environment of almost any business. One is changes in technoJogy; the other is ehanges made in political regulations.

The continuous development of technology means that produetion proeesses and produets always are subject to impulses of change. One major impact of the current microelectronics paradigm is expected to be a ch ange of scale economies in produe­ tion in many industries. Technology has made it easier to adjust production processes to respond to different product standards. Thus, standardized mass production is chal­ lenged by more flexible production arrangements, which allow profitable production of goods and services that are increasingly adapted to the specific needs of different customers (Piore and Sable, 1984; Edquist and Jacobsson, 1988; Ylä-Anttila and Lovio, 1990).

However, even if we theoretically can argue that scale economies are be coming less pre dominant in production, there may still be untapped scale economies, for instance due to political regulations. And there may still be substantial scale economies regard­ ing other economic activities, as in R&D and in fmance.

As technology changes, so do political regulations. There is a rather unilateral trend among industrialized countries to promote competition. Almost globally steps are taken to liberalize flows of capital, goods, services and labour. This takes place with­ in countries, and in the economic relations between countries and different economic regions of the world. Entry and exit barriers are being reduced. Business is increas­ ingly becoming more exposed to international competition.

These technological and political changes provide frrms with the option to exploit new opportunities regarding production processes, product development and market access, while being exposed to stronger competition. This obviously has to affect their 17 behaviour, and in tum show up in what we conceive as industri al transfonnation, e.g. regarding the size of fInns and the content of business operations.

As the SBUs are most directly exposed to competitive forces, the effects of changes in the competitive environment on a corporation are channelled through the aggregate ef­ fects of such changes on its SBUs. This is the way of thinking which guides our dis­ cussion below on current trends regarding l) division of labour, 2) factors of production, 3) intemationalization and 4) frrm size.

l. Division of labour: One option in new technology is that producers may increase their profIts by exploiting the opportunities which technology creates to adapt prod­ ucts to the needs of specific customers. Another option is that activities which used to be conducted inside one frrm, now may be decoupled and performed more competi­ tively in separate SBUs. If both of these opportunities prove profItable, competition will force production to become more specialized. SBUs may maintain and strengthen their competitive edge by concentrating their efforts to the activities which they per­ form the best.

The recommendation for a competitive strategy is according to current management literature that any SBU ought to cultivate its core competence (Reve, 1990), and to purchase the inputs they need in performing their core activities from other SBUs which enjoy a competitive advantage in producing the se inputs. The implication is a decoupling of activities which either are not based on, or do not support, the core competence of the SBU. The division of labour should be increasing at the SBU level of the economy. If there is such a trend, this should for instance show up as an in­ creasing share of purchased goods and services relative to the sales value of produc­ tion in SBUs. This seems to be the case in many lines of production when consulting industry level data (Carlsson, 1989; Hammervoll and Heum, 1992). 18

Even at the corporate level the literature suggests that corporate strategy ought to be designed so that the corporation may expand, or diversify, on the basis of a common denominator of competence, or technology (Porter, 1987). Then it may gain synergy from its different business engagements, which is crucial for justifying the existence of the corporation economically. This recommendation is in contrast to the corporate development which was observed through the 1960s and 1970s, when corporations in many instances expanded by moving into businesses which were rather remote to their core (Scherer, 1988).

Current trends in corporate development are expected to be more in consistenee with the recommendations in the literature on corporate strategy. ,There is, no simple way of measuring to what extent the division of labour is increasing at the corporate levet. The relative level of externaI sourcing would be increasing if the corporations did not change their portfolio of business engagements. But this is changing all the time, through mergers, acquisitions and divestitures.

2. Factors of production: If there is a general trend that SBVs cultivate the core com­ petenee of their business, fmns will need to pay more attention to externai sourcing. They will have to defme their needs, investigate how these may be satisfied, be concious about how relations to suppliers are organized, and implement efficient sup­ plies. Furthennore, the potential to tailor products to the specific needs of different customers, means that fmns also increasingly have to interpret what the particular needs of their customers actually are, how these may be served through different prod­ uct adjustments, and to make customers concious of the se needs. In other words, it is becoming increasingly decisive to combine effective supplies and sales efforts with in­ novative capabilities in product development and production. Competitiveness is not determined soJely by th.e efficiency in fabrication, but by the overall capacity within a fmn to identify, create and exploit business opportunities (Carlsson and Stankiewicz, 1990). This capacity is discussed as economie or industri al competence (Pelikan, 1988). 19

Such industrial competence may be regarded as the decisive factor regarding the possibility of keeping and strengthening the competitive edge of fInns (Eliasson et al., 1990). Brain-power and organization will increasingly decide the future of fmns and corporations. Other production factors, such as natural resources, physical rea] assets and man-power, will be less important than earlier. Empirically this me ans that intan­ gible investments should grow more rapidly than investments in physical real assets as buildings, machinery and equipment. This is shown to be the case at the industry level in the Nordic countries (ETLA et al., 1990). However, due to the continuous rear­ rangement of business engagements within corporations, this trend is not necessarily reflected when applying the same measure on only a group of corporations.

Another way of approaching this issue empirically would be to consider the share of value added spent on intangible investments. If competence is becoming more decisive for the competitivenes of fmns, this share is likely to increase, which is documented to be the case at the industry level (BjerkIund and Heum, 1990). The relative level of in­ tangible investments compared to value added varies substantially, however, between industries. Since corporations continually rearrange their portfolio of business engage­ ments, this measure is not guaranteed to capture such a trend as long as only a group of corporations, and not all, is considered.

3. Internationalization: As political regulations are designed to liberalize the flows of goods, services, capital and labour internationally, competition is becoming global­ ized. This is reinforced by the development of technology which has eased long-di s­ tance communication considerably. These changes in the competitive environment of fInns should, when taking the the sis that fmns increasingly cultivate their core busi­ ness into account, mean that fmns have to expand foreign sales to grow and to reap profIts. At the same time they will also increasingJy have to consider foreign supplies to ensure that they will stay competitive. The business of a country will increasingly have to conduct sales abroad. Moreover, it probably means that competitive fmns have to engage in production outside its country of origin. This may partly take place 20 through subsidiaries, partly through strategic alliances, or coalitions, with foreign finns (Porter and Fuller, 1986).

Foreign production has been considered as a means of getting around trade barriers, or to escape unfavourable conditions to business domestically. However other, and more important, factors should be regarded as the driving forces behind the expected internationalization of business.

As far as bulk production is concerned, costs of transportation and the efforts to re­ structure mature industries internationally, stimulate corporate efforts to engage in production world-wide. Some will have to withdraw, but the most competitive will be­ come more international. As far as knowledge-intensive production is concerned, the needs to stay close to customers, and the possible advantages of global sourcing, Le. drawing on the dynamics of different global technology centers, imply that frrms will establish production in several countries. If participating in just-in-time production ar­ rangements, this may become even more evident.

The level of internationalization varies between different industries. The trends of be­ coming more international in business operations are, however, widespread and strong, in particular for the business of small economies. Thus, we expect it to show up as an increase in the shares of foreign sales within total sales and of foreign em­ ployment within total employment for almost any groups of business entities on which a study may focus.

4. Size of firms: International competition and new technology also affect the size of corporations and SBVs. Acquisition and mergers are frequently justified as a response to the increasing competition from abroad. Partly, it is the kind of argument that "one needs to be large to fight foreign giants" which is presented. More fundamental argu­ ments may, however, also be introduced. 21

International integration of business, due to CUITent efforts to liberalize and standard­ ize trade and capital flows, probably reveals untapped economies of scale. Thus, the size of business entities should be expected to be increasing in industries where such barriers have been prevalent. Furthermore, there may exist scale economies in econ­ omic activities, as in R&D and in fmance, which also may cause corporations to grow. Besides, current trends in business development require more and larger risky invest­ ments. This holds for investments in intangible assets, which are needed to respond to increasing knowledge requirements in production; and it is the case regarding invest­ ments to gain footholds abroad, which may be needed to operate in a more competi­ tive environment internationally. In both of these areas, the failure ratio is significant. Firms need a solid fmancial base to engage in these. If the fmancial base is weak, such investments will expose the fmn to huge risks, making its whole business vulner­ able to a failure in every single investment project. One way of hedging against such risks, is to be part of a larger corporation, which can suffer losses in any single invest­ ment project without jeopardizing its long-term business engagements. This should also imply that corporations should be expected to grow in size.

On the other hand, the trend at the corporate level to consolidate and expand on the basis of related diversification, could imply the opposite. For the USA it is do cum­ ented that the employment in the large st US industrial corporations has shrunk since 1979 (Carlsson, 1989). De long (1988) also fmds that concentration is being reduced in the USA. However, in Europe he fmds it still to be increasing. As the largest Nordic corporations are rather small by international standards (cf. chapter 4.5), we expect their size development to be in accordance with this general European pattem, i.e. corporate growth.

At the SBU leve l, however, theory suggests a different trend. New technology changes the rationale of economies of scale. In many areas of production, as in the engineering industry, large scale operations do not generate as great advantages as in the era of mass production (Carlsson, 1989). The more profitable opportunities to adapt products 22 to the specific needs of different customers, the greater the demands on SBUs to be flexible in production and organization: Flexible production systems are becoming more competitive (Ranta and Tchijov, 1990), favouring the competitiveness of small and mediumsized fInns (Diwan, 1989). If demand patterns should be changing more rapidly than before, this advantage of small scale business could be favoured even more despite high fIxe d costs. All in all, this calls for a trend of "scaling down" among SBUs (Johnstone and Lawrence, 1988). This is confInned empirically in the sense that according to Nordie industry level data, the average employment of business establish­ ments, is decreasing in several industries (Carlsson, 1989~ Hammervoll and Heum, 1992 and Ylä-Anttila and Lovlo 1990).

Thus, we are confronted with patterns of development on the Nordic scene, which on the one hand should imply that corporations will grow, while on the other hand that SBUs are becoming smaller. There is no contradiction in this. A corporation en­ compasses several SBVs. Corporate growth can take place despite a trend of a declin­ ing size in SBUs, simply by including more and more SBVs within the corporate span of control. In this respect it is also important to recall that technology has improved the possibilities to distribute and interpret information considerably. Thus, the capac­ ity to coordinate an increasing number of business engagements within one corpor­ ation should technicaIly be present. The exploitation of this option will, however, depend on to what extent internaI coordination actualIy serves the corporate purpose. 23

3.4 Questions to Be Addressed in the Report

Table 3.1 briefly sums up the previous discussion on CUTTent trends in business, and how they may to illustrated empirically employing fInn level data.

We are not attempting to address all the issues regarding a fInn level approach to analysis of industri al transformation which was raised above. Actually OUT ambition is quite limited in this respect. Besides presenting the content of OUT large fInn data base,

OUT main intention is to assess the macroeconomic importance of these large fInns, and to use them as a micro sample to illustrate trends in Nordic business development.

The macro aspects of the largest Nordic fInns are considered in two ways. First, in Chapter 5 we discuss how the growth of fmns affects the rank stability and the persist­ ence of large fmns. At the end of the report (Chapter 7) we consider the contributions to economic activities which these large fmns hold in their domestic economies.

OUT discussion on Nordic business development is limited to this large fmn data base. As these fmn level data have been collected at the corporate level of fmns, we are un­ able to consider ch anges in business at the SBU level. OUT main focus is on corporate growth and on the intemationalization of Nordic business. The data allows us to touch upon the issue of knowledge based production only to a minor extent. 24

Table 3.1 Summary of expected firm behaviour

Current trends Implications for Aggregate ex - SBUs pected effects of SBU changes on corporations

Increased speciali- Value added rela- Related diversifi- Division of zation due to the tive to sales is cation, which due labour cultivation of the decreasing. to continuous re- core competence in structuring requi- finns. res detailed stu- dies to be docu- mented.

Industrial compe- R&D-expenses R&D-expenses Factors of tence is becoming relative to value relative to value production relatively more im- added. (or . sales) is added (or sales) portant. mcreasmg. should be increa- smg.

Foreign produc- Foreign pro duc- tion, employment tion, employment Internationali- Increasing. and sales are in- and sales should zation creasing in relative be increasing in terms. relative terms.

Descaling in produc- Potential untapped tion. Possible eco- economies of nomies of scale in The size of SBVs scale in R&D, fi- Size offmns R&D, fmance, mar- is reduced nance, and marke- keting and interna- ting mean that in- tional operations. ternationally small corporations will Igrow. 25

4. DEFINITIONS AND DA TA ON LARGE NORDIC FIRMS

4.1 Problems in Defining Manufacturing and Firms

The prime concern of our research is to apply a frrm level approach to analyze manu­ facturing production, which is considered the key to wealth for all the Nordic countries. However, if we only are to include manufacturing frrms, our empirical base may easily prove too narrow. Manufacturing capabilities do not only evolve from cur­ rent manufacturing production, but also from business in neighbouring industries. In particular, we assume the possibilities of spill-over effects to manufacturing from the extraction of non-renewable natural resources, as .ore, oil and natural gas, to be of im­ portance. Thus, in this study we pay attention to the ISIC industries 2 and 3.

Defming mining and manufacturing as the empirical bas e of our study poses another problem. The conventionai classification of industries does not give a sufficient pic­ ture of manufacturing production. Manufacturing frrms are increasingly becoming ser­ vice producers (Eliasson et al., 1990), while they also decouple manufacturing services in separate units which officially are classified to belong to other industries. Hence, official statistics do not properly account for the role of intemal and externai service production related to manufacturing frrms. There is, however, no easy way to avoid this problem.

A frrm level approach poses another defmitional problem, which may be labled the boundaries of the frrm (Tirole, 1988). The modem corporation is no easily defmable entity. In many respects its boundaries are blurred because of several types of owner­ ship arrangements and contract based inter-organizational relations (Ylä-Anttila and Lovio, 1990). Some consider the firm as a "nexus of treaties" (see Aoki et.al., 1990). Also here we have to make a choice, and we end up by applying the legal boundaries which defme the frrm as a fmancial entity. 26

These two main defmitional problems arise because the traditional boundaries be­ tween fInns and industries are fading away. National accounts and industri al statistics do not properly measure the industry level aggregates; and defming fInns as fmancial entities neglects the contract-based inter-fInn relations, which are of importance when the frrm, is seen as a strategic decision making unit. This, however, has to be a short­ age to our study, as it is to most others.

4.2 The Data Base on Large Nordie Firms

We focus on the 30 largest industrial corporations of Denmark, Finland, Sweden and Norway. The number 30 is chosen at random. Our concern has been to select a number that is small enough to be handled effIciently while it secures a suffucient ma­ croeconomic relevance. Our study will show whetner the number of 30 large fInns serve this purpose for the Nordic countries.

Further c1arifIcation is needed to operationalize what we mean by the largest Nordie industrial corporations. We defme a corporation as a fmancial entity encompassing several business engagements which legally are within the controI span of one owner­ ship group. An industrial corporation is defmed as a corporation which has more than 50% of its total employment in conventionaI mining and manufacturing. This means that industri al corporations may have SBUs operating in other industries, but that the majority of employment in the corporation as a whole is in industries c1assi­ fIed as ISIC 2 or 3.

Defming Nordic industrial corporations, we inc1ude all frrms operating in one of the Nordic countries, even though they may be owned from abroad and be part of alarger foreign corporation. In such cases, however, we only include the legal parts of the frrm registered in the host country, i.e. also foreign subsidiaries which are directly subordinated to their controI. 27

When selecting the largest industrial corporations Nordic country, several size measures are available. As value creation is our main concern when studying indus­ trial and economic development, information on value added would be a quite natural ranking criterion. Value added data is, however, hard to come by at the finn level. The most frequently reported size measures are sales and employment. As we expect employment figures to be the ones that correlate most strongly with value added, we have chosen it to be our ranking criterion. We have then considered world-wide em­ ployment of the corporations rather than employment which they have in their countries of origin. Either way, the sample of corporations would have been more or less the same. Only the rank order is to some extent affected.

The D1unber of variables on which we have sougbt corporate data, is quite limited. We have sougbt information on sales, employment, R&D, profits and foreign oper­ ations (sales and employment) as weIl as on value added and on the founding year of the finn. At this stage, the priority has been given to foreign operations, in particular regarding sales and employment, and our data coverage is fairly good in this respect. However, also for the se variables as for the others, there are variations in the coverage over time and between countries. Appendix l presents the list of variables and in­ formation on the number of corporations from which we have data.

, 4.3 Problems Regarding the Data Base

It is a fact that corporations continuously are subject to change. When constructing a data base on specific finns, the extent of mergers and acquisitions may cause some trouble. Our basic idea has been that we keep the acquiring corporation in our data base, and regard it as expanding througb external growth. The acquired corporation or SBU becomes part of the acquiring fmancial entity. If the acquired unit is a corpor­ ation, it stops to exist as a separate entity at the corporate level. In some cases, how­ ever, it is difficult to say which of the two merging corporations that actually should 28

be considered as staying on as a fmancial entity. Then we have had to rely on OUT own discretion. There is no reason to believe that this causes major problems in analyzing our data.

There are, however, three matters to be aware of when interpreting the data which is used in this report. The frrst concems consistency within the data. As there are no sys­ tematically collected public data on corporations in any of the Nordie countries, we have had to collect them from different sources: mainly from annual reports and di­ rectly from the management of the corporations. This me ans that we base our informa­ tion on the consolidation principles which the corporations apply. These may vary between corporations, and they have to some extent been changed for the same frrm during the period covered by this study. Thus, accepting the consolidation principles of the corporations, we are aware of problems that may arise when interpreting devel­ opment pattems which the data reveal. We think, however, that the se problems are of minor importance in our study.

The second matter concems the industry aggregates which are used to compare growth pattems at the corporate and nationalleveI for the different countries, and to calculate the sh are of the largest corporations in domestic mining and manufacturing. We make use of National Accounts, which causes a problem as service production is included in the corporate figures, while excluded for those at the aggregate level. We take account of that in our discussion.

Finally, the sampling of corporations may cause some problems when the data is used to analyze ch anges in the ways business is conducted. The 30 largest corporations in the data base are selected for evety year between 1974 and 1990. Thus, our sample varies from one year to another, while panel data would be preferrable when analyzing industri al transformation. 29

As the largest corporations one year tend to be among the largest also in later years, we do to some extent have panel data. The number of corporations which can serve as a panel for all of this period is on the other hand fairly low, i.e. less than 20 in each country.

Establishing panel data is, however, more complicated than to just include the appar­ ently same corporations over the period considered. A corporation changes over time as it invests to take the advantage of changing business opportunities, through mergers and acquisitions, and by divestitures. Only the corporation's name may remain a con­ stant. Thus, to establish true panel data we not only need to collect information for the years a corporation does not qualify to be among the 30 largest; in some sense we also have to consolidate its business engagements over time.

However, for practical purposes we do not expect it makes much difference to illus­ trate current trends in business development on the basis of the then largest industri al corporations in a country, rather than to examine these trends on the basis of a panel sample selected among the largest corporations. At least this is what we can expect because of the persistence of large finns, which is documented in Chapter S. This is also conftrmed when comparing the trends envisaged by our samples with results from our preliminary attempts to construct panel data from our data base.

4.4 The Largest Corporations of the Nordie Countries

Applying the selection criteria as previously discussed, the 30 largest industri al cor­ porations of each of the Nordic countries are those listed in Table 4.1. Just g1impsing at the figures, it is evident that the largest of the Swedish corporations are rather huge compared to the Iargest of the other Nordic countries. None of the Danish corporations in 1990 is as Iarge as any of the 10 largest of Sweden, and only l of the largest in 30

Finland (NOKIA) and in Norway (NORSK HYDRO) would have made the Top-lO in Sweden according to employment.

However, by Nordic standards also the largest Finnish corporations are rather huge. Actually, the smallest of the 30 Finnish corporations making this list, is larger than the similar Swedish corporation according to employment. Further, both No. 30 in Fin­ land and in Sweden, would have ranke d quite high both in Denmark and Norway. 31

Table 4.1 The largest Nordic industrial corporations by country, 1990.

Corporation Employees Corporation Employees

Denmark Finland SOPHUS BERENDSEN 14600 NOKIA 37336 DANFOSS 13910 RAUMA-REPOLA 20724 DANISCO 12744 KONE 20120 CARLSERG 12192 VALMET 17955 F.L.SMIDTH 10937 KYMMENE 17943 NOVO 8742 OUTOKUMPU 17494 GRUNDFOS 7179 METRA 16901 NKT 6979 ENSO 15974 ROCKWOOL 5566 KEMIRA 15256 :MDFOOOS 5501 PARTEK 14762

SKANDINAVISK HOLD. 5289 YHTYNEET PAPER.13434 TULIP 4588 AID..STRÖM 13324 LEGO 4221 ASKO 13218 ABBOENMARK 4220 FAZER 13204 SUPERFOS 4115 METSÄ-SERLA 13049 1. VILLADSENS F ABR. 3820 TAMPELLA 12265 SADOLIN & HOL:rvfBLAD 3298 NESTE 11707 BANG & OLUFSEN 3200 HUHTAMÄKI 10431 INCENTlVE 3068 RAUT ARUUKKI 10124 AARHUS OLIEF AB RIK 2729 WÄRT Sll..Ä 9740

GUTENBERGHUS 2616 STRÖ:rvfBERG 8339 AALBORGPORTLAND 2585 AMER 8218 V KANN RASMUSSEN 2516 ORION 6124 STEFF HOULBERG 2399 SANOMA 5545 LÖVENS KEMISKE 2394 SUOMEN SOKERI 5317 ELECTROLUX OK 2334 LAS SILA-TIKANOJA 5016 B WOIESEL 2279 VEITSILUOTO 4886 ODENSESTAALVALSE 2238 TAMPEREEN KIRJAP. 4556 BERLINGSKE 2170 HACKMAN 4406 DANYARD 2046 MASA YARDS 3934 32

Norway Sweden NORSKHYDRO 33042 ASEA 215154 STATOIL 13222 ELECTROLUX 150892 ELEKTRlSK BUREAU 12979 VOLVO 72213 KVJERNER 12774 ERlCSSON 66138 AKER 12461 SKF 49305 NORA 7727 PROCORDIA 45193 ELKEM 7454 STORA KOPPARBERG 36416 DYNO 7273 SKANSKA 31746 NORSKE SKOG 6465 SCA 30139 ORKLA-BORREGAARD 6317 SAAB SCANlA 29388 FREIA-MARABOU 5476 NOBEL INDUSTRlER 26654 SlEMENS 3085 SAND VIK 26373 ALCATELSTK 3085 NORDSTJERNAN 23178 RIEBER& SON 2883 TRELLEBORGS 21939 NORSK JERNHOLDING 2810 ATLASCOPCO 21507 RAUFOSS 2777 ALFA LAVAL 20809 ULSTEIN 2758 ESSELTE 19545 HAFSLUND NYCO.MED 2735 INCENTlVE 16525 PHILLIPS PETROLEUM 2712 AGA 14559 NORSK DATA 2579 MODO 12961 MOEL VEN INDUSTRIER. 2550 EUROC 9207 JOTUNGRUPPEN 2375 ASTRA 8846 APOTEKERNES LAB. 2340 ESAB 8279 TIEDEMANNS 2323 BAHCO 7806 M.PETTERSON & S0N 2288 ASSI 7633 NORSK FORSV ARST. 1845 PERSTORP 7374 MUST AD INDUSTRIER 1610 PLM 6342 ESSONORGE 1272 sKÅNE GRIPEN 4810 KVERNELAND 1228 NCB 4727 NORSKE SHELL 1121 SÖDRA SKOGSÄGARNA 3285

Source: The large finn data base of the Nordic Perspective Group

The large Swedish corporations are dominated by ASEA, which we have regarded as Swedish while it actually is Swedish-Swiss, and ELECTROLUX. Similarly NORSK HYDRO stands out in Norway and NOKIA in Finland. However, if size had been measured by value added or sales rather than employment, the Norwegian picture wouId, due to the high value of oil, have been dominated by 2 corporations: Statoil and Norsk Hydro. In Denmark no corporation stands out in a similar way relative to the others in the group of the 30 largest in 1990. 33

The largest corporations also differ between the Nordie cOWltries as to industries in which they operate. In Table 4.2 the Iarge fmos are classifield according to industry. However, most of the fmos are operating in several industries which the table does not reveaI. Nevertheless, the differences between the finns resemble the differences in the industriaI base between the. Nordie cOWltries as described in Chapter 2.

Table 4.2 The 30 largest corporations by industries, 1990

Industry Denmark Finland Norway Sweden

OiI and mining - - 4 -

Food stuff 5 2 3 l

Textile and clothing - l - -

Woodand paper l 5 3 6

Chemicals 8 2 4 4

Non-metallic mineral products 2 2 - 2

Basic metaIs - 2 l

Engineering and metal products 9 Il 11 12 Other industries and 5 5 3 4 multibranch comparues Total 30 30 30 30 34

4.5 Large Nordie Corporations in an International Perspective

The largest of the large Swedish corporations are obviously giants compared to their

Nordic counterparts. How~ver, when compared to the largest corporations of other small countries, this relative hugeness is not so remarkable. Figure 4.1 shows the dis­ tribution of the 8 largest corporations according to sales for Switzerland and Austria in addition to the 4 Nordic countries of this study. Then the largest of the Swedish do not stand out so much as in the strictly Nordic comparisons.

Figure 4.1 The 81argest firms in selected small countries, 1989. Corporate sales in billion USD.

Sales bill. US$ 35r------~

30 ------

25

20

15

10

5

O Switzerland Sweden Austria Norway Finland Denmark

Source: Nordic Perspective Group.

The largest Swiss corporations are of the same magnitude or even somewhat larger than the largest Swedish. The interpretation depends to some extent on how ASEA (ABB) is c1assified. In Figure 4.1 it is included both as a Swedish and a Swiss corpor­ ation, due to the 50/50 ownership structure between the se countries. However, the 35

Swedish and the Swiss corporations in this figure are in general much larger than the largest of the other countries. Actually, with the exception of the state-owned holding company AUSTRlAN INDUSTRlES, the largest Austrian corporations are smaller than the similar ones in Denmark, Finland and Norway (cfr. Siegel, 1991).

When comparing the largest Nordie corporations with those of large countries , the picture is different. Then the magnitude of even the largest Swedish corporations tums out as rather modest, while the other Nordic corporations appear quite dwarfish. This is evident from Figure 4.2. Here figures on corporate sales are added together for the 8 largest industri al corporations 'of different countries. Accumulated sales of the 8 largest Swedish corporations were about 80 billion USD in 1989, while for the corpor­ ations of the other Nordic countries 30 billion USD or less. The similar figure for the 8 largest US corporations was 540 billion USD, and 300 and 220 billion USD for the eight largest J apanese and Germany respectively.

Figure 4.2: Accumulated sales of the 8 largest corporations in seleeted countries, 1989. Billion USD.

~O~------~

500

400

300

200

100

o Usa Jpn Ger Uk Fra Swi Swe Fin Nor Aus Den III Sales bill. US$

Source: Nordic Perspective Group 36

We sh all not go deeper into the question of international size differences among fmus from different countries. Of course, the relevance of applying sales figures to rank and compare corporations may be questioned, and differences in lines of production ought to be brought into considerations. Nevertheless, our point is simply that despite the hugeness of the largest domestic corporations on the Nordic scene, and of the Swedish in particular, these fmus do not in general stand out as giants by international stan­ dards. With one or two exceptions, this even holds for the largest Swedish fmus. 37

5. INDUSTRIAL TRANSFORMA TION AND LARGE FIRM PERSISTENCE

5.1 Stability in Rankings, 1974-1990

A crucial question when considering only a sample of the largest ftnns is to what ex­ tent the composition of the group of the largest fmns is subject to ch ange by the indus­ trial transfonnation that defmitely has been going on in the Nordic area. Signiftcant ch anges in the composition should indicate that industrial transfonnation is driven by rapid growth of new, or previously small fmns, and in tum by the subsequent decline of the previous large. On the other hand, signiftcant persistence should indicate that the large fmns prove rather efficient in adopting to changes in their business environ­ ment, and that they consequently represent a major force in the continuously ongoing transfonnation.

We employ basically two methods in answering the questions above: changes in rank correlations within the group of top 30 companies and the number of exits and entries in the group. It has to be noted that when making the stability analysis on the basis of Spearman rank correlation coefficients, we employ infonnation on all the fmns which appear among the 30 largest in any of the years 1974-1990. Altogether this is about SO companies from each country. The companies in this sample which do not qualify for the top 30 in a certain year, are that year ranked as 31 (for the required adjustments to correlation analysis, see Ruefli and Wilson, 1984 and 1987, Thomsen, 1992).

The stability ftgures display the rank correlations between the starting year (1974) and the subsequent years. They have been calculated on the ranking of ftnns according to employment, and on their ranking according to sales. For Finland, Norway and Sweden we have annual observations; for Denmark we have observations for 1974, 1978,1983, 1987 and 1990. 38

The persistence analysis based on Speannan rank correlation coefficients is summa­ rised in Figure 5.1 according to employment and sales respectively, and for each country in Figure 5.2.

Figure 5.1 Rank stability for the largest industrial corporations in the Nordie countries, 1974 - 1990. Speannan rank correlation coefficients.

Employment

Finland

l ~:.:'c ..,: ..... :.... :.... : ...... ~'·"""'·"""'·"""" .~.~ .: Norway 0,9 ..•. ':- ·..:.~... ,o';' . :'.~·:'·····:····':··'·':"'~S1:....: .. v:.~...... : Sweden : ••••::.,., .... _ _ .n.... :...... : . -- ... '. 0,8------~- --:~~, '-"~<~~~. .... ~~:;:---- 0,7 .. ' . . .- -, '...... - ...... - .~..•... ~. . " . . .' .. \,...... :: ...... :: ...... <..~ ••• ~ '" o,. o•. 0,6 '_ ...... - ...... ". : . .:...... :....

1978 1982 1986 1990

Sales

, Finland

l . . : -...... I,. -. -••••••- 1- o_! ··:·:·~~·······:·····.·:, ••••••~ ••••••• :.w.: ...... ~~ ..... ~.~...... ~ .... ;w: ...... ~ ...... ~ ...... ~ .. -" I Norway

0,9 :. ~:~'~.:-.~ ~ .... __ ······~~=·~,··~ .. :... v~.,.:"\ . '...••.•. , Sweden , ••••• ~...... - \'\"~'.....•. ,~ ...... -_ ...... ~. ~ Denmark '...... ~ ...... -::0-...... ; ...... ::? _ 0,8 .~.. . , ~ •••••• .>h••••• ~:...... ~

1_ _ _ _ ......

...... I ...... , 0,5 1974 1978 1982 1986 1990 39

5.2 Rank stability for the largest industrial corporations by country, 1974-90. Speannan rank correlation coefficients.

Denmark

, fmployment

...... I...... l Tumover

0,9

0,8 ;.:•• 1- ...... i ...... i ...... ,-... I

I I'. I I ...... ~ ...... 0,7 , '" I • '. 0,6 '...... '...... '......

0,5 1974 1978 1982 1986 1990

Finland

, Employment

l - - - . - . - ,- . - - . - . - ~ - - - . . . . ~ - - . . - - -. Turnover

... ~ : 0,9 .'" ...... ,- ...... :\...... -...... - :- ...... j • ~' , . .1 I ..... _- ...... _-- ...... -- _--; 0,8 , ...... '. - ...

0,7 .. ., ...... I...... : ... .

1978 1982 1986 1990 40

Figure 5.2 continues

Norway

Employment

l Tumover r~"":::::';"~- ..... ~---~---. ------,...... I ...... ---:.: .... 0,9 ...... -.... .'.. , .. .. 0,8 ...... , '. .... ;- ...... _ ~...... 0,7 ...... ,'

0,6 1974 1978 1982 1986 1990

Sweden

Employment

Tumover l

\ '. "'- 0,9 .. ... '" .. ..'. '-.:. ~~~~~~------~~ I ...... -,

••~ •••"'" I ...... ~...... 0,8 '...... ~ ••_I-_ ...... "...... ,I 0,7 1974 1978 1982 1986 1990

Source: The large ftnn data base of the Nordie Perspective Group 41

The fITst conclusion is that the size structures are rather stable in all countries, in par­ ticular over the fITst ten years under consideration. There are, however, some interest­ ing differences between the countries. The group of Swedish companies is showing the highest stability and the Danish group the lowest among the four. The ranking of the Swedish and Norwegian fInns is more stable according to employment than sales, whereas in Denmark it seems to have been the other way round. The group of Finnish frrms, in tum, is showing more or less similar changes in rankings based either on em­ ployment or sales.

Without further information it is impossible to conclude on the reasons for these dif­ ferences. We may, however, look into the question ofwhether the largest frrms in this sample - i.e. those ranking highest in the group of leading companies - tend to be more stable in their rank positions than the smaller ones. This issue is considered for the large frrms of Finland, Norway and Sweden in Figure 5.3. We do not have a suffi­ cient number of observations to do this properIy for the large Danish finns. The indi­ cator of frrm-specific stability is calculated simply as an average of changes in rank positions over the period 1974 to 1990. The higher it measures, the more unstable has the rank position been. This is plotted along the vertical axis, while the average rank position of the frrm over this period is plotted along the horizontal axis. 42

Figure 5.3 Stability in rank position vs. company size among large firms. Ranking according to employment.

Finland

Change in stability indicator

4r---~----~----~----~----~----~--~ o , , o ------~ -'o- ~ - 3 ------o' ------o o 'o 0111> ' o'

-I)- .. 0..-0- ~ ö - . - ~ - - 2 o, o, - - Ö - - - 0 o 0 o Q 0 0 o o o , !> o- - (). , - -, - - - - -,- -, - ;0,. 1 i

o O O 5 10 15 20 25 30 35 Average rank position

Norway

Change in stability indicator 6~------~ , ...... '.. "' ...... I 5 , o , .o o~ , , , 4 1-- r, , , ,0 o, '", , 1), __ il ___ -o -o- 3 f o O I " 2 "\)I- - ,- .. c·- ... .. Gt I'" .. oc o o' l

o:; o '" 00 5 10 15 20 25 30 35 Average rank position 43

Figure 5.3 continues

Sweden

Change in stability indicator 5r---~----~----~----~----~--~----~ , 0, 4 ...... -' ...... !...... ' ...... ' ...... ! ...... I I C I

3 ...... ,- ...... -I ...... ,- ...... I ...... "o· rp ...... I (; I I I I I

I I c. '8 I I G o ~ I I I I o I " I 2 ...... ,- ...... -, ...... i ..... ,:;...... ," ...... -, ... - ...... ~o-- ......

o o I c· ,;, I·j l ":"0 I I o I c'," ...... ' ...... _I ...... '':'! ...... ' ... Q ...... ' ...... !,...... l I o I I o I I I !) , 00 Q o o 5 10 15 20 25 30 35 Average rank position

Source: The large fmn data base of the Nordie Perspective Group

The message from the figure is quite clear: The bigger the finn, the more likely it is to keep its (high) rank position. This holds for all the countries. The correlation is veIY clear and statistically significant. It should, however, be noted that the size differences between fmns are the larger the larger the fmns are. Thus, a certain percentage ch ange in the employment of fmns causes greater rank variation among the small er fmns in the sample than among the largest. The observed relation between size and rank stabil­ ity is in other words rather self evident.

Another way of considering the persistenee of large finns, is to examine the frequency of exits, or new entries, regarding the group of the 301argest. This is done in Table 5.1, showing that on the average there are about two exits per year in each countJy in the period under consideration. This shows, again, a high stability among finns hold­ ing the leading positions.

Exits/entries have, however, increased during the latter half of the 1980s. That con­ cems in particular Norway, where the number of exiting finns per year in the latter 44 half of the 1980s is twice as high as in preceeding decade. Also in Sweden the number of exits has increased signficantly. As there are hardly any corporation disappearing from the groups of the largest due to bankruptcy, the se differences between subperiods can mainly be explained by the rise in mergers and acquisitions among the largest frrms which took place throughout the 1980s. If exits due to mergers and take-overs are excluded, there are no major differences, neither between subperiods nor across countries. The average number of exits due to relatively slower growth of previously large frrms is approximately one per year for each country over the whole period from 1974 to 1990.

These fmdings regarding large frrms are in line with some previous studies. Data from the VS industry shows that the average number of exits from the group of 100 largest companies has been about 3 during the same period from the mid-1970s to late 1980s (see Scherer and Ross, 1990).

In the standard industri al organization literature the high stability of leading frrms' positions is usually interpreted to indicate lack of dynamic competition. In the case of the open Nordic economies, however, we are cautious to draw this conclusion. Most of the leading companies are competing outside the national borders in very different types of markets. If anything, one can conclude that no major changes have taken place in terms of dynamic competition in the groups of leading Nordie companies over the period from the mid-1970s to 1990. 45

Table 5.1 Exits from the groups of the 30 largest corporations by country, 1974 - 1990. Finns ranked according employrnent.

Year Denmark Finland Norway Sweden A B A B A B A B 1975 -- l O 2 O 2 O 1976 - - O O 2 O l O 1977 - - 1 O l O 2 O 1978 6 O 2 O 4 l 3 O 1979 - - l O 2 O l l 1980 - - O O l O l l 1981 -- l O 2 2 2 O 1982 -- 4 O l l l l 1983 5 O 3 O 2 O O O 1984 - - l O l l 3 2 1985 - - l O 4 l l l 1986 - - 2 O 5 3 5 l 1987 7 l 3 O 4 4 5 4 1988 -- l O 5 4 2 O 1989 -- 1 O 4 3 2 2 1990 6 2 2 O 2 2 l I

AVERAGE

75-90 1,5 0,2 1,5 O 2,6 1,4 2 0,9 75-84 - - 1,4 O 1,8 0,5 1,6 0,5 85-90 -- 1,6 O 4 2,8 2,7 1,5

A = All fInns B = Finns leaving the group due to bankruptcy or merger

Source: The large fInn data base of the Nordie Perspective Group 46

5.2 Persistence of Large Firms in a 50-Y ear Perspective

The 15-years perspective certainly reveals changes in all the Nordic countries regard­ ing the composition of fmns that qualify for the group of the 30 largest. However, the group of the largest in 1990 is by no means completely different from the similar group in the mid-1970s. A significant number of the largest in the beginning of this period is also among the largest of today.

A period of 15 years is, however, rather short when considering how the basis for deeply rooted organizations, like large corporations, usually change. The existence of fmns are based on organizing human capital, industrial competence, real assets and fi­ nancial resources, which all may be applied for different business opportunities. This means that a fmn may continue to exist while the businesses in which it is engaged, may change. Or, at least, the ways it operates its businesses are changed in order for the fmn to stay competitive.

Large fmns can usually refer to a long industri al history. This may be illustrated by considering the age of the largest industrial corporations in 1990, or what we have called their founding year. In our interpretation, however, the founding year does not refer to the year in which a corporation was legally established in its present form. A merger, for instance, means in some sense the legal establishment of a new corpor­ ation without necessarily liquidating the businesses in which the merging partners were involved. Thus, we consider the founding year to be the year of establishment for the oldest business unit from which the business engagements of the present corpor­ ation directly have evolved.

As we have left the problems of operationalizing this rather unclear defInition to the discretion of the project participants from each country, our information on this matter ought to be interpreted with some caution. Nevertheless, it is rather obvious from Table 5.3 that the operations of the largest Nordic corporations generally can be traced long back in time. Only in rare cases are they based on a business that frrst was estab­ lished over the previous 25 years. This is the case for all Nordic countries. It is further 47

a common feature for the 30 largest corporations of all the countries that only some 20-30% has evolved from a business unit which was not weil established at least 50 years ago. Actually, in all countries a significant number of the 30 largest corporations of today seems to have a history of at least 100 years.

Table 5.3 Founding year for the oldest business within the largest Nordie indus­ trial corporations of 1990. Number of corporations

Founding Year Denmark Finland Norway Sweden 1965-1990 5 2 3 2 1940-1964 4 4 3 5 1915-1939 7 10 3 7 1890-1914 4 4 11 11 -1889 10· 10 11 5

Source: The large fInn data base of the Nordic Perspective Group

The history of the largest corporations illustrates the long-tenn character of business development. Furthermore, it underlines the prerequisite of continuity in industrial transfonnation: New businesses evolve from the current industrial base. Only rarely does something distinctly newemerge. Except for the discovery of unknown natural resources, as happened in Norway with oil and gas in the early 1970s, nothing come s out of the blue.

The continuity which characterizes industrial transformation, does not imply that the largest corporations of today were the largest in previous periods. Smaller fInns may have grown and surpassed those which were the largest in the earlier days. Despite relatively high rank stability discussed in the previous section, the introduction of new fInns into this sample of large is also part of the story. It ought to be even more so if a longer time perspective is applied. 48

This we will eonsider by eomparing the largest eorporations of the period prior to World War II, as they are presented in Table 5.4, with the largest of today (ef. Table 4.1). The ranking of the largest more than half a eentury aga is for Denmark from 1938, and it is based on Thomsen (1992); also for Finland it is from 1938, based on Ripatti, Vartia and Ylä-Anttila (1989); for Norway it is for 1936, based on Walder­ haug (1992); and for Sweden it is from a decade earlier, for 1925, based on lagren (1988). 49

Table 5.4: Largest industrial corporations of the Nordie countries, pre-WWII.

Denmark, 1938. Finland, 1938.

STORE NORDISKE TELEGRAFSELSKAP ENSO-GUTZEIT DE DANSKE SUKKERF ABRIKKER WÄRTSILÄ DE FORENEDEB RYGGERffiR A. AHLSTRÖM NORDISK KABEL OG TRAAD FINLA YSON-FORSSA BURMEISTER & WAIN TAMPEREEN PELLA VA- ja RAUTATEOLLISUUS ÅLBORGPORTLAND KYMIN DE FORENEDE P APlRF ABRIKKER VALTIONRAUT ATEIDEN KONEP. AARHUS OLJEFABRIK W. ROSENLEW & Co. SUPERFOS WILH. SCHAUMAN F.L.SMIDTH & Co SUOMEN GUMMITEHDAS

CARL ALLER PORIN PUUVlLLA DE DANSKE SPRITF ABRIKKER SUOMEN TRIKOOTEHDAS DANSK CICORffi YHDISTYNEET VILLATEHTAA T NORDISK FJER YHTYNEET PAPERITEHT AAT HELSING0R SKIBS- OG MASKINBYGGERI KAUKAS KRYOLITH MINE OG HANDEL ARABIA FISKER & NIELSEN SOK:n TEOLLISUUSLAITOKSET GYLDENDAL PARAISTEN KALKKIVUORI GLUD & MARSTRANDS FABRIKER VAASAN PUUVILLA BALLIN & HERTZ KEMI

STJERNEN HACKMAN & Co. TITAN RAUMA KASTRUP GLASV JERK SUOMEN SOKERI HENRIQUES & L0VGREN TRIKOTAGE OTK:n TEOLLISUUSLAITOKSET DANSK MEDICINAL- OG KEMI STRÖMBERG K0BENHAVNSBR0DFABRIK JOHN BARKER KONGELIG PORCELLAIN OULU V0LUND VUOKSENNISKA LAURIDS KNUDSEN VEITSILUOTO BRANDTS KLJEDEF AB RIK H:gin KAUPUNGIN TEOLLISUUS­ LAITOKSET so

Norway, 1936 Sweden, 1925

BORREGAARD ASEA O. MUSTAD & S0N STORA KOPPARBERG NORSKHYDRO SWEDISH MATCH UNION GRÄNGESILKAB FREJA CHOCOLADEF ABRIKK SKF ASKIM GUMMIV AREF ABRIKK SOCKERBOLAGET CHR. BJELLAND & Co. UDDEHOLM AKERS :MEK. VERKS TED HÖGANÄS-Bll..LESHOLM ORKLAGRUBE TOBAKSMONOPOLET SAUGBRUKSFORENINGEN ERICSSON

SYDVARANGER YTTERSTFORS-MUNKSUND CHRISTIANIA SPJGERVERK HOLMENS BRUK CHRISTIANIA GLASMAGASIN HUSQV ARNA VAPENF AB RIK FREDRIKST AD MEK. VERKSTED GIMO-ÖSTERBY BRUK SULITJELMA GRUBE SANDVIK ELEKTRISK BUREAU DE FORENEDE ULDV AREF ABRIKKER NORSK ALUMINIUM COMPANY NYLANDS VERKS TED NYDALENSCOMPAGNffi

ELECTRIC FURNACE PRODUCTS Co. NORSK ELEKTRISK & BROWN BOVERI STR0MMENS VERKSTED DET NORSKE ZINKKOMP ANI RAUFOSS AMMUNISJONSF ABRIKKER DALE FABRIKKER THUNES MEK. VERKSTED TOFTE CELLULOSEF ABRIKK ARNE FABRIKKER KONGSBERG V ÅPENF ABRIKK

Sources: Thomsen (1992), Ripatti, Vartia and Ylä-Anttila (1989) and Hjerppe (1979), Walderhaug (1992), lagren (1988).

Several of the names on this pre-WWII list are easily recognized when considering the names of the largest corporations in 1990. Thus, it is by no means so that the COIpor­ ations in the group of largest in a country, is completely replaced by other corpor­ ations over a period of more than 50 years. 51

Actually, when we examine the current situation of the largest fmns from the pre­ WWII period, a great number can be traced to the largest fmns of today. This is sum­ marized for the 30 l arge st of Denmark, Finland and Norway in the latter half of the 1930s in Table 5.5.

Table 5.5 Current situation of industrial corporations that we re largest in the late 1930s. Denmark, Finland and Norway.

Denmark Finland Norway Among the 30 largest of 1990 as an inde- pendentcorporation 9 14 8 Merged to be part of one of the 30 largest corporations of 1990 5 6 11 Still in business 9 4 10 Closed down 7 6 l

Source: The large fmn data base of the Nordic Perspective Group

Obviously large fmns seem to be rather persistent. In Finland and Norway roughly two thirds of the 30 largest corporations in the late 1930s are represented within the group of the 30 large st in 1990. In Denmark this is the case for almost half Less than one fourth of the 30 largest fmns from the late 1930s are completely closed down. In Norway this concerns only one of the whole group of30.

The persistence among large fmns from the late 1930s is even more evident when con­ sidering the largest of the large: 8 of the 10 largest in Denmark are found among the 30 largest also in 1990, of which 4 still are independent corporations; in Finland it is 9 of the 10, and 6 as independent; and in Norway it is 7 of the 10, and 5 as independent. Of the 10 largest from Sweden in the mid-1920s, 7 are among the 30 largest in 1990, and of these 4 are still independent. 52

Thus, it seems fair to summarize that there is a noteworthy persistenee within the group of the largest industri al corporations in all Nordie countries. Of the largest in 1990, some are almost a one-to-one extension of one of the largest more than 50 years ago; some represent restructured constellations involving one or more of the largest at that time; othets are new to the scene of the largest. However, only rare ly these are "newcomers" directly based on business units that were not in operation 50 years ago. Similarly, only a few of the largest half a century ago can be classified as completely out of business today, even though their lines ofproduction may have changed.

These fmdings clearly indicate that the l arge st industrial corporations at any point in time must be playing an important role in the renewal and restructuring of industrial activities on the Nordie scene. This does not mean that they are the innovators, nor that the operations of small and mediumsized finns are of no significance. What it means is that a significant share of the largest, at one time or another, seems to engage successfully in the process of industri al transformation. This involvement, however, may either be based on innovations and creativity originating in each of the Iarge cor­ porations, or it may be based on what others actually have initiated. 53

6. THE GROWTH AND TRANSFORMA TION OF LARGE NORDIC FIRMS

6.1 Corporate Growth

The fact that the largest Nordie industrial corporations are rather small by interna­ tional standards has led us to expect an overall growth in the operations of Nordie fInns at the corporate level. The argument is untapped economies of scale, and that such growth will make the single businesses of the corporations less vulnerable to the demands put on them regarding internationalization and intangible investments.

The simplest data to use to measure corporate growth is to consider changes in corpor­ ate employment. Figure 6.1 shows the average world-wide employment of the 30 largest corporations of each of the four Nordie countries in the 1974-1990 period. For Finland, Norway and Sweden we have annuaI observations; for Denmark the observa­ tions concern 1974, 1978, 1983 and 1990.

Figure 6.1 Average employment in the group of 30 largest industrial corporations of Denmark, Finland, Norway and Sweden, 1974-1990

Employment 35,000 , , ..•..•. -: Sweden•..•.. 3 0,000 :------: ------: ------:- - -/ - -- -: .•.., , Finland t I , -, I 25,000 l'"' ....;.;.; ..... , ...... ; ...... ,_ ...... , .. ,_ ...... _, - ~.. - .. .,.... 't. _.. ••.•. I I Norway I , I .:.:-:.y... y'.,.;o,.,.:.x.:- ...... I I I I 20,000 , Denmark 15,000 ,- ...... ," ...... ,'" ...... I'" ...... I 10,000 .:.,.,.':--~-~-~-~-~-~-~-~,-~-~-~-~-~-~-~-,~-~-~-~------~-~ I , I I f 5,000 .~~.;",,;~"'~~~;,,;,,:,.;·.. w;~·;"':~."'''' ~i·"lii·jf·~·WW""·.~·~."'.t: , 1978 1982 1986 1990

Source: The Iarge fmn data base of the Nordie Perspective Group. 54

The figure reveals the size differences among large corporations from different Nordic countries as discussed in Chapter 4, with the Swedish fmns as the definite ly largest and also the Finnish finns as much larger than the largest of Denmark and Norway. From table 6. 1 we see that the 30 largest Swedish corporations in 1990 taken together have almost one million employees. Comparing this to the 370.000 employees in the 30 Finnish, the 170.000 in the 30 Norwegian and the 160.000 in the 30 Danish, the 30 largest Swedish corporations on the average are 2.7 times as large as the largest Fin­ nish, and approximately 6 times the largest ofNorway and Denmark. Even if only the Swedish-based parts of ASEA were included in the sample, the se differences would hold true but not to the same extent. Total employment of the 30 largest Swedish cor­ porations would then have been approximately one-sixth lower.

However, despite these size differences there are certain similarities in the pattem of corporate growth between the largest fmns of the four countries. During the 1970s and early 1980s employment growth was rather modest among the se largest corporations. Then, on the average, the group of the largest fmns from all these countries grew rapidly throughout the latter half of the 1980s.

The relative magnitude of this corporate growth is more clearly seen when consulting Table 6.1, which presents employment figures for these groups of corporations in 1990 and in the mid-1970s. For the 30 largest fmns from all the countries, it is obvi­ ous that employment growth has been significant. However, some differences occur regarding the relative growth of employment of the se corporations. It has been of the same magnitude as far as the Danish and Swedish corporations are concemed. In Nor­ way this growth rate has been somewhat higher on the average, while it in Finland has been the strongest. To be more specific, the employment of the 30 largest Finnish cor­ porations in 1990 is almost 60% higher than in 1974, in Norway it is almost 50% above, while in Denmark and Sweden somewhat less than 40% higher.

Considering different groups among the 30 largest fmns, it is evident that employment in the group of the 10 largest has increased significantly over the period in all 55 countries. In Norway employment among these largest of the large corporations has grown more than 70% since 1974, or equivalent to an annual average growth rate of 3.5%. In the other 3 countries the 1990 employment in the group of the 10 largest is some 50% higher compared to the mid-1970s. However, if only the Swedish-based operations of ASEA in 1990 were included, employment growth among the 10 largest Swedish corporations would have been less than 20%.

Table 6.2 World-wide employment of the 10 and the 30 largest Nordic industrial corporations by country of origin, 1974175 and 1990. 1000 persons.

D enmark Finland Norway Sweden

1974 1990 1975 1990 1975 1990 1975 1990 10 largest 65 98 131 195 69 120 491 727 11-30 largest 52 63 105 176 45 50 236 272 30 largest 117 161 236 371 114 170 727 999

Source: The large finn data base of the Nordic Perspective Group.

With the exception of Finland, the growth in employment has been much weaker among the 20 next largest corporations on the list for all countries. Employment in this latter group of Finnish corporations has increased with almost 70% since 1974. This group of corporations from the other 3 countries reveals employment growth at the level of 10-20% over this period, with the Norwegian at the lower end of this in­ terval. AItogether, this indicates that the largest of the large corporations has become relatively larger within the domestic business community particularly in Norway, but also in Denmark and in Sweden. This is not the case in Finland. The concentration ratio within the group of the 30 largest is the highest in Norway and Sweden. 56

A more detailed picture on how corporate growth has affected the size distribution among the 30 largest corporations of different Nordic countries, is presented in Figure 6.2. It is evident that employment in the NO.I corporation of Norway and Finland, and in the NO.l and 2 of Sweden, has increased significantly from 1974 to 1990, whereas there 'is no similar growth for the highest ranked Danish corporation. Never­ theIess, the size distribution within the whole group of 30 corporations is with this ex­ ception rather even in Finland, and has become increasingly so since 1974. A rather even size distribution also characterizes the 30 largest corporations of Denmark, as was the case even 15 years ago.

The country-internal size differences were most prominent among the largest corpor­ ations of Sweden in 1974, and they have been strengthened since then. Even greater size differences have formed among the largest Norwegian corporations, which now resemble the Swedish distribution. Thus, the corporate growth that has taken place since the mid-1970s, has been more broadly based among the 30 largest corporations of particularly Finland, but also of Denmark, compared to the development among the largest corporations from Norway and Sweden. 57

Figure 6.2: Employment in each of the 30 largest industrial corporations of Denmark, Finland, Norway and Sweden, 1990 and 1974.

Denmark 1990 1974

16,000 .------., 16,000 ,------, 14,000 14,000 12,000 12,000 "''''''''

Finland 1990 1974

40,000 ...------, ~,ooor------_.

30,000 30 000 ...... ,...... 1

20,000 20.000 ......

10,000

o COMPANIES COMPANIES mi Number of employees Ii Number of employeel 58

Figure 6.2 continues

Norway 1990 1974

35'ooo..------.., 35,000 r------.., 30,000 30.000 25,000 25.000

20,000 20.000 15,000 15,000 10,000 10,000

5.000 5.000

° COMPANIES ° COMPANIES mi Number of employees fil Number of employees

Sweden 1990 1974

250,000 r------, 2~,000..__------_..,

200,000 200,000 ......

150.000 ......

100,000 100,000 ...... "" - ......

COMPANIES COMPANIES a Number of employees fl Number of employees

Source: The large fInn data base of the Nordie Perspective Group 59

6.2 Internationalization of Business

6.2.1 The Internationalization of the Largest Firms

The largest Swedish corporations are well-known for their world-wide activities. This is confInned in Table 6.2, which shows that business activities abroad playa sub stan­ tial role in the operations of the largest Swedish corporations: 78% of their sales are with foreign customers, and 62% of their corporate employment are outside Sweden. This is not caused by any single corporation: Even if only the Swedish originated parts of ASEA were incIuded, foreign sales in the Swedish sample would have been at the level of 75% of corporate tum-over, and the share of corporate employment abroad would have been above 55%.

Table 6.2 The international base of the 30 largest industrial corporations by country, 1990. Foreign billing in per cent of corporate sales~ employment in foreign subsidiaries in per cent of corporate employment.

Denmark Finland Norway Sweden Foreign billing; %of 62 69 66 78 corporate sales Foreign employ- ment; % of 34 39 33 62 corporate empl.

Source: The large fmn data base of the Nordie Perspective Group

It is also evident that foreign operations playamore substantial role for the largest Swedish corporations than for the largest industri al corporations of the other Nordic countries. However, the international base is also quite significant when considering 60 the largest industri al corporations of the other Nordic countries. The 30 largest Dan­ ish, Finnish and Norwegian corporations all have on the average 60-70% of their cor­ porate tumover abroad, and one third or more of their employment in foreign subsidiaries.

Extending the issue of international footholds among the largest Nordic industrial cor­ porations, we may examine how widely such foreign operations are distributed within the group of the 30 largest of the different countries. Table 6.3 sheds light on this by listing to what extent the tumover of the different corporations is based on foreign sales.

Table 6.3 Foreign sales in per cent of corporate sales for the 30 largest industri al corporations by country, 1990. Number of corporations.

F oreign sales in per cent of corporates sales Country 0-29% 30-49%, 50-69% 70-100%

Denmark 3 4 8 15

Finland 4 4 7 15

Norway 5 6 9 10

Sweden 2 2 7 19

Source: The large fmn data base of the Nordic Perspective Group

It is evident that Swedish corporations in general are more oriented towards interna­ tional markets. As manyas 26 of the 30 corporations have more than half of their sales revenues from abroad. However, the serving of foreign markets is also broadly 61 represented among the largest corporations of the other Nordie countries as weIl. Some 23 of the 30 largest Danish corporations have more than 50 % of their corporate turnover abroad, while this is the case in 22 of the largest Finnish frrms, and in 19 of the Norwegian.

Another aspect of international footholds is foreign production. Table 6.4 classifies the corporations on the basis of the extent to which they have employees in subsidi­ aries abroad. Actually, as manyas 26 of the 30 largest Swedish corporations have more than 30 % of their employment outside Sweden; 17 have more than half of their corporate employment abroad. The largest corporations of the other Nordic countries are more extensively based on production in their horne country: The number of cor­ porations with 70 % or more of their employment domestically is quite high in Nor­ way, Finland and in Denmark. However, even among the 30 largest corporations of the se countries there is a group of 6 to 9 frrms which has more than half of their em­ ployment abroad.

Table 6.4 Employment in foreign subsidiaries in per cent of corporate employment for the 30 largest industrial corporations by country, 1990. Number of corporations.

Foreign employment in per cent of corporate employment Country 0-29% 30-49% 50-69% 70-100%

Denmark 17 7 2 4

Finland 13 8 7 2

Norway 16 8 5 I

Sweden 4 9 8 9

Source: The large frrm data base of the Nordic Perspective Group 62

Comparing the infonnation of the two tables, 6.3 and 6.4, it seems rather clear that the largest corporations of Denmark, Norway and Finland to agreater degree than those of Sweden, have based their international footholds on traditional exports. As far as the largest Swedish fInns are concerned, foreign sales are more closely linked to foreign production than is the case of the largest fInns of the other countries.

However, according to the changes in the distribution of employment between domes­

tic and foreign establishements of these fInnS, foreign production is defInitely becom­ ing more important for foreign sales also with respect to the largest corporations of Finland and Norway compared to the 1970s. Table 6.5 provides data which clearly shows that the sh are of foreign employment is increasing relatively more than the share of foreign sales.

Table 6.5 Foreign sales and foreign employment among the 30 largest industrial corporations by country, 1974175 and 1990.

Denmark Finland Norway Sweden

1974 1990 1974 1990 1975 1990 1975 1990 Foreign sales, % of corporate turnover - 62 41 69 49 66 66 78

Employment abroad, % of corporate em- - 34 <10 39 6 33 37 62 ployment

Source: The large fInn data base of the Nordie Perspective Group

These changes regarding traditional exports vs. foreign production when operating in­ ternationally is probably also going on among the largest finns of Denmark, even 63 though we lack data to document it fmnly. The table further shows that the largest Danish, Finnish and Norwegian corporations in 1990, on the average, now resemble the largest Swedish corporations of the mid-1970s as far as foreign operations are concemed. This does not mean, however, that they necessarily are lagging 10 years or so behind the development of large Swedish fInns. The direction of ch ange is the same, whiIe the differences in levels to a great extent may be expIained by differences in production and lines of business, as welI as by differences in the composition and tradition of domestic private investors.

6.2.2 The Largest Firms Have Primarily Grown Abroad

Figure 6.3 pictures empIoyment in the 30 largest corporations of Denmark, Finland, Norway and Sweden over the period 1974-1990. These employment fIgures are, with the exception for Denmark, split up between entities located in the corporations' country of origin and abroad.

When considering the distribution of employment between domestic and foreign-Io­ cated entities of the se fmns, an interesting feature regarding the operations of the largest Nordic corporations appears. Over the whole period studied, the 30 Iargest fmns have not increased their employment in their countries of origin. The level of their domestic employment has been stable, or in Sweden it has even been decreasing slightly since 1975. The reduction of the large fmns' employment in Sweden has par­ ticularly occured in the late 1980s. Lower absolute levels of domestic employment in the late 19805 is also the case for the largest Finnish fmns. In 1990 this also occured in Norway. Thus, despite the rapid growth of the largest fmns as discussed in Chapter 6.1, this means that corporate growth when measured by employment has taken place abroad. 64

Figure 6.3 Employment in the 30 largest industrial corporations by country, 1974-1990. World-wide, domestic and foreign employment.

Denmark Finland

180,000 400,000

150,000 , 300,000 . .. _I ...... ' ...... ' 120,000 ., , ...... -...... I I ....___ ._1

, , , ..... 1 _ ... , 90,000 . . . . .! '. '. 200,000 ' .. . ' . .' • . • L - , 60,000 , . .. ",'" ... ., ., r ,. . . , '7 100,000 .. -' .. ..' J ..... ,,. ...." . '.

30,000 f 1._ •..•..•.. ~ " O °1974 1976 1978 1980 1982 1984 1986 1986 1990 1974 1976 1978 1980 1982 1984 1986 1988 1990 total employment total employment domestic employment foreign employment

Norway Sweden

200,000 ,..."----,---:---.,---;--.....--.....--..,--,, 1 ,200,000 r-:---:---:---""---~-:----:---:----:-'1

1,000,000 •••, .... 150,000 .-

800,000 I" .. "' ... ,. 100,000 600,000 50,000 ' ..... ' ...... ' 1..:.""*'- I •• -, I I ...... ~:..... I • ..'-_•• ':..:.. I ...... _I ...... ' ...... ;..,.;...I.& ...... , ... :"JI ...... I I •••• t 400,000 ··~··· I I I I I I ._,. I I ..... ···I···_··~ •••••• 'P ...... -:••••• -le •••• -:... - ° 197~··~;;~···1~;;··:~ 1982 1984 1986 1988 1990 200,0001974 1976 1978 1980 1982 1984 1986 1988 1990 total employment domestie employment foreign employment total employment domestic employment foreign employment

Source: The large finn data base of the Nordie Perspective Group 65

This pattern of corporate growth abroad is also envisaged when the group of the 30 largest is split up to show the development for the 10 and the 11-30 largest corpor­ ations. Employment figures for 1975 and 1990 are presented for these groupings of the corporations in Table 6.6 except for the largest Danish finns, where data from the mid-1970s is lacking.

Table 6.6 Employment in the 10 and the 11-30 largest industrial corporations by country, 1974 and 1990. W orI d-wi de, domestic and foreign employment. 1000 persons.

Denmark Finland Norway Sweden Employment 1974 1990 1974 1990 1974 1990 1974 1990

Domestic: 101argest - ca.58 ca.126 100 64 78 273 254 11-30 largest - ca.49 ca. 100 127 43 36 183 126 30largest - ca. 107 ca.226 227 107 114 456 380

Abroad: 10largest - ca.40 ca.5 95 5 42 218 473 11-301argest - ca.14 ca.5 49 2 14 53 146 30largest - 54 ca.10 144 7 56 271 619

W orId-wide: 10largest 65 98 131 195 69 120 491 727 11-30 largest 52 63 105 176 45 50 236 272 30largest 117 161 236 371 114 170 727 999

Source: The large fmn data hase of the Nordic Perspective Group 66

As discussed in Chapter 6.1, the data on world-wide employment c1early envisages corporate growth for the 10 and the 11-30 largest corporations in all Nordic countries. Even though the extensiveness of growth varies between the two groups of corpor­ ations and between their countries of origin, it is also evident from Table 6.6 that foreign employment has grown within both groups in all the countries.

There are, however, huge differences regarding the domestic effects of this growth. Both the 10 and the 11-30 largest Swedish corporations have reduced their employ­ ment in Sweden. The 10 largest Norwegian corporations have increased their employ­ ment in Norway, whereas it has been reduced for the 11-30 largest. In Finland it is the other way around: The 11-30 largest corporations have increased their Finnish em­ ployment, while the 10 largest have reduced theirs. Nevertheless, it is evident that the overall picture of the largest Nordic industri al corporations is that corporate growth has taken place abroad throughout the 1980s in particular.

These data on the pattem of corporate growth, or intemationalization, are in no way sufficient to conc1ude anything on whether the largest Nordic corporations are "lea­ ving" their home country" or whether it just means that they are adapting to a new competitive environment in order to maintain and improve their competitive edge. A brief discussion of possible effects 'of this intemationalization on the national econ­ omic development is brought up in Chapter 8.

6.2.3 Foreign Ownership Controi of Large Nordic Firms

Intemationalization is not only expressed through exports and outward foreign direct investments. The other side of the coin is imports and inward direct investments of foreigners. Data is scarce to elaborate on this at the corporate level. We do, however, know whether the corporations in our sample of large fums are majority owned from abroad or not. 67

Table 6.7 gives the information as to how many of the 30 largest corporations for the different Nordic countries which were majority owned from abroad. Abroad in this sense also means other Nordie countries. For instance, ASEA of Sweden is the major­ ity owner of one of the 30 largest corporations in all the other Nordic countries; ABB Denrnark, Strömberg in Finland and Elektrisk Bureau in Norway.

Table 6.7 Foreign ownership of the largest Nordie industrial corporations, 1975, 1983 and 1990. Number of corporations among the 30 largest of Denrnark, Finland, Norway and Sweden which are majority-owned from abroad.

Denrnark Finland Norway Sweden Year

1974 O l 3 O

1983 l O 5 O

1990 4 2 6 O

Source: The large fmn data base of the Nordic Perspective Group

It is evident that more of the largest Danish and Norwegian corporations are majority owned from abroad than is the case with the largest of Sweden and Finland. This probably reflects differences in political regulations and the political practice regard­ ing inward investments between these countries, and for Sweden compared to the others also differences in the strength of domestic capital owners. It should, however, be mentioned that the largest Swedish corporation, ASEA (ABB), is 50 % foreign owned. Thus, it could have been classified differently without changing the pattem that large Swedish corporations are hardly ever majority owned from abroad. 68

If the Nordie economies are to be dynamic parts of the integrating European economy, inward investments should be expected and appreciated. However, this does not mean that all corporations, or all of the largest, will benefit from being part of alarger foreign constellation of businesses. This raises the complex issue regarding the role of ownership cOIitrol in fmn dynamics (Elias son et al., 1988). 69

6.3 lndustrial Competence and Competitiveness

6.3.1 lnvestments in R&D of the Largest Firms

The creation of value is in general based on abilities to combine labour and capital for the purpose of satisfying needs in society. Competitiveness is then frequently ex­ plained by the access to valuable natural resoruces, or to huge volumes of relatively cheap labour or capital. In the modem fInn, however, the capabilities to innovate; to adopt and apply technological and organizational opportunities; to collect, systemize and interpret information; to develop competitive relations with suppliers; for product development; and for marketing and after-sale service, are considered the key factors to success. Human and organizational capabilities, rather than manpower and money, are increasingly becoming decisive to create value profItably. The industri al compet­ ence of organizations and individuals are put to test when the supplies of labour, capi­ tal and natural resources are scarce.

Industrial competence is an intangible asset in which fInns invest in different ways. It concems marketing, product development, soft-ware systems, education and team-building, to mention some. Despite the fact that such intagible assets are ex­ pected to be of importance, and increasingly so, for the competitiveness of fInns, data is still scarce in this area. What we have at the fInn level is usually limited to informa­ tion on R&D-expenses. R&D is, however, only a fraction of the multitude of invest­ ment objects regarding industri al competence (Eliasson et al., 1990). Nevertheless, we will make use of this information to illustrate the changing importance of such assets for modem business.

Figure 6.4 shows the R&D intensity of the largest industri al corporations of Finland, Norway and Sweden. The intensity is calculated by measuring R&D in per cent of corporate sales. It would have been preferrable to relate these investments to the value 70 added of the corporations.Corporate sales are, however, chosen simply because the data coverage is better.

Due to missing observations, we have calculated the arithmetic mean of the R&D-to­ sales ratio for those years when data is available. In addition we have demanded a minimum data coverage, which me ans that only some years are plotted for the largest Swedish corporations, and that the latter half of the 1980s is left out. It should also be noted that for Norway we only have R&D spent by domestic establishments of the largest corporations, while for Sweden and Finland we cover the R&D activities of the se corporations world-wide. This means that we to some extent underestimate the R&D intensity of the Norwegian corporations. However, R&D in their foreign estab­ lishments is defmitely not extensive. Qnly for a couple of corporations does it playa noteworthy role. Thus, our underestimation should be of minor importance.

Figure 6.4 R&D in the 30 largest industrial corporations by country, 1975-1990. Per cent of corporate turnover. Unweighted average.

R&D/Sales 4,5 r------...., Sweden 4 .. .. •• t. ,. .. .. Finland 3,5 .,... . ,. . Norway .1JIl·- 3 I I l· I 1. 1 .- 2,5 . . .. , ..." .-...... , , 2 .

I I I I I 1,5 . _____ ...-...... "...-- I ...... ~ ..": ••• __

I I t I •••••

l ~~~~~-~~~~~~~~~~~--~ 1974 1976 1978 1980 1982 1984 1986 1988 1990

Source: The large fmn data base of the Nordic Perspective GrouP. 71

Despite these wamings, the figure should give a fairly good indieation of differenees in the R&D intensity and its development for the largest eorporations of these eountries. It is evident that R&D is relatively more prevalent within the largest Swedish eorporations, than in the largest of Norway and Finland. It also shows that the R&D intensity tlrroughout the 1980s has been inereasing among the largest eorpor­ ations of Sweden and of Finland. In Norway, the R&D intensity seems to have been rather stable. However, this is due to the faet that oil eompanies with low R&D inten­ sities have beeome more important within the group of 30 throughout the 1980s, eounteraeting the dear trend of a higher R&D intensity whieh has been doeumented for Norwegian manufaeturing finns when relating it to value added (Björklund and Heum, 1990; HammervoIl and Heum, 1992).

Differenees in the average R&D intensity between the eorrporations of different Nordie eountries may to some extent be explained by differenees in the kinds of busi­ nesses in whieh these finns are engaged (ef. Table 4.2). The more rapid growth in R&D-intensity among Swedish finns from the late 1970s to the mid-1980s, may the related to an earlier internationalization of Swedish finns allowing them to reap profits on ownership advantages, fueling R&D in these fmus (Swedenborg et. al., 1988).

6.3.2 R&D and the Internationalization of Firms

R&D is one way of investing in industri al eompetenee. As expenditures on internal edueation, marketing work and information networks, it represents the more system­ atie, or organized way to up grade industrial eompetenee. Sueh eonseious investments may, however, not be the most important in this respect, and on its own such efforts are hardly likely to eontribute to the competitive edge of fmus. Industrial competence necessarily has to be based on the leaming of fmus and individuals in general, i.e. on gaining from experience, and suecesses and failures in many areas, as weIl as eombin­ ing ideas collected from many different ongoing business operations. 72

Internationalization is a way to apply the industri al competence of a finn in new envi­ ronments. Doing so, experience may feed back on innovative activities, and thus the industrial competence of fmns. This is the technology accwnulation approach applied on multinational corporations (CantweIl, 1989). Internationalization is also thought of as one way for fmns with a small home base to capture scale economies in activities as R&D (Swedenborg, 1979; 1991). Thus, for different reasons a positive correlation is to be expected between the levels of R&D and internationalization within fmns.

Figure 6.5 Rate of internationalization and R&D intensity in large Nordie man­ ufacturing companies in 1987. Foreign employment in per cent of total employment (EMPFORlEMP) and R&D in per cent of sales.

E:MPFORlEMP 100 ,..----...,.-----.,.------:------, SWEDEN

o o

80 --- -. ö - ~ ------,------,------NORWAY o • 'o FINLAND 60 I- ---- I:> -- '------'------'------• I I I 1 o • 0 • • I '0 I ...... I , I 40 1-.. ~ - "'!fl' -- -.,------,------, ------• o••

• '. b' , 20 t-...------~ ------,- -- 0- ---- ,------"~~•••. . o ••,. o, , o ~ • ~. ,....; ~ o 10 20 30 40 RD-intensity

Source:The large fmn data base of the Nordic Perspective Group and National Accounts.

This is briefly considered in fIgure 6.5 where fmns are plotted according to R&D in­ tensity and their engagement in production abroad (share of employees in foreign sub­ sidiaries). Foreign owned fmns are excluded as their participation in international production is not taken fully care of by our data. However, the predicted relationship 73 between R&D and intemationalization does not gain convincing support in our data. Future research ought to consider how foreign and state ownership as weIl as political regulation affect the se aspects of fum behaviour. It may also be adviseable to distin­ guish between different lines of production in which fums operate. 74

7. LARGE NORDIC FIRMS IN DOMESTIC MANUFACTURING

7.1 Output and Growth

An interesting task is to compare the largest ftnns and their development, in particular their growth, with total manufacturing, meaning mining and manufacturing (lSIC 2 and 3), in their countJy of origin. This also provides information on the relevance of focusing on such small group of frrms when considering industrial transformation at the macro levelofthe economy.

At the ftrm level there are certain common features regarding the growth pattem of the largest Nordic corporations, at least since the mid-1970s. The growth in total number of employees has been 50-60 % over the 1974-1990 period, or equivalent to 2-3 % as an annual average. In the same period total manufacturing employment in all Nordic countries has been decreasing. Thus, corporate growth has been clearly faster than that in total domestic manufacturing. There are, however, slight differences across the countries and subperiods as indicated by Table 7.1. 75

Table 7.1 Growth of employment in the 30 largest firms and in total domestic manufacturing, 1974 - 1990. Average annual ch ange, %.

Denrnark Finland Norway Sweden 30largest

1974-1980 1.7* 2.1 l.8 l.7

1981-1990 36**, 3,7 3,2 3, l

1974-1990 2.0 3.1 2.6 2.6 Total manufac- turing -0.2 -1.2 -1.2 -4.0 1974-1990

* 1974-1978 ** 1983-1990

Source: The large fmn data base of the Nordic Perspective Group and National Accounts

As already discussed, the growth of the large fmns has mainly taken place abroad: Over the 1974-1990 period domestic employment in the top 30 group has been rather stable in Finland and Sweden and onJy slightly increasing in N orway, while we lack Danish data (cfr. Chapter 6.). In the latter part of the 1980s the domestic employment of the largest fmns is showing a declining trend in Finland and Sweden, and to some extent in Norway. Contrary to that, the growth of foreign employment of these fmns was accelerating throughout the 1980s, the Finnish fmns showing the highest growth rates. This raises the question as to how the rapid intemationalization has affected the growth performance of the domestic business units in these large fmns relative to other domestic fmns. Have the domestic growth of the large fmns been slower or faster than domestic manufacturing on the average? Figure 7.1 provides some answers. 76

Figure 7.1 Employment in the 30 largest firms (world-wide and domestic) and in total domestic manufacturing and mining, 1975-1990. 1974 = 100.

Finland

Ind. 200r------.

150 .-

••••••••••••••••••••~ •••••••••~... I I ....a_... ,__ I •••• I I • I ...... 100 .. _.".-•• -- ..-= -_ ...... - .. '" ...... - ...... I _ ••••• ,., ••• " I "' ...... _ ... I I I

I " -a. _" I I I I -:".".'.

50~~--~~~~--~~~--~~~~--~~~--w 1974 1976 1978 1980 1982 1984 1986 1988 1990 World-wide Dornestic Industry total

Norway

Ind 200

175 -' .

150

125 .. ' .. ,",-~ . .~ ; .--; --"""-, .. --...... 100 .... _==:=.::;,;r:;,_=.. ::_= ..::_ ... _~._ ... _... -~~:.. ~~.. , : .... :..... '. :. .. _.. _.~_ ..•..•...- .. _.. .. -.. : - -..•..• 75

1976 1978 1980 1982 1984 1986 1988 1990 World-wide Dome5tic Industty total ...•..•. 77

Figure 7.1 continues

Sweden

Ind.

200~------~--~--~----~--~--~----~

I I I I I I 150 ,- --- -, --- -, ---- ~ --- -, --- -, ---- ~ --- -_-.....-"":'"

,

I ...." I I I .'.. I I I .....~...... , •••••••~ •••• I 100 ...... "...... ,- - ...... # - ...... """'" .. I I ...... __••• ,._ •• _ •• I • ...... ,_·:_ •• ~ •• _ ...... - •• _.:I , I I I ,. •• _ •• _~. - I I I

50~~~~~~~~~~~--~~~~~~--W 1974 1976 1978 1980 1982 1984 1986 1988 1990 World-wide Domestic Industry total

Source: The large frrm data base of the Nordic Perspective Group and National Accounts

The dornestic operations of the top 30 group seerns to have grown somewhat faster than the average rnanufacturing growth rneasured in terms of employment. So, in spite of the fact that most of their corporate growth has been abroad, the contribution of these frrms to total domestic manufacturing has been increasing.

Table 7.2 presents this in some other way, by calculating the employment in the largest frrms in per cent of total manufacturing employment in their Nordic horne country. The calculations have been done on the fmns world-wide ernployment, on on their employment in domestic business units, and they are presented for the 10, the 20 and the 30 largest firms of each country respectively. 78

If the foreign employment of the large fInns are included, the relative size of the large fInns has grown tremendously: the ratios have doubled, or almost so, in all countries except for Denmark. Nevertheless, this relatively rapid growth of the largest fInns is clear in Denmark, too.

When we focus on domestic manufacturing activities alone, this trend of more rapid large fInn growth is not so evident, but nevertheless clear. In each of the Nordie countries where data is available, the concentration ratio based on domestic employ­ ment has been growing when comparing 1990 and 1974. This growth has been strongest as far as the largest Finnish fInns are concemed, and clearly weakest in Sweden.

With an employment sh are of 35-50% through their domestic business units, the 30 largest industri al corporations are clearly dominating Finnish, Swedish and Norwegian manufacturing industries. Denmark differs clearly in this respect. In Sweden and in Norway the group of the 10 largest fInns holds a more signifIcant position than in Fin­ land, whereas the 20- and 30-fmn ratios are much higher in Finland than in the other two countries. This reflects the more equal size distribution of the largest Finnish fmns which was discussed in Chapter 6. 79

Table 7.2 Employment (total and domestic) in the largest manufacturing com­ panies as a per cent of domestic industry total*, 1974 and 1990.

Denmark Finland Norway Sweden

1974 1990 1974 1990 1974 1990 1974 1990

10largest - total 12,7 19,5 21,8 42,2 17,2 37,4 44,4 76,4 - domestic - 11,5 19,0 22,0 16,2 24,2 23,9 26,7

20largest - total 18,6 27,2 33,2 68,3 24,2 47,0 57,4 97,9 - domestic - 17, l 30,0 40,0 23,0 32,0 32,7 36,8

30Iargest - total 22,8 31,8 40,3 80,5 28,8 52,7 65,3 105,0 - domestic - 21, l 37,0 49,2 27,4 35,8 39,2 39,6

* Mining and manufacturing

Source: The large fInn data base of the Nordic Perspective Group

Previous studies on the performance of Swedish multinationals have shown that they have been perfonning better than domestic fmns in tenns of overall and domestic growth, productivity and profItability (see Swedenborg et.al., 1988 and Swedenborg, 1992). However, when conferring Figure 7.2, which shows the largest finns' share of domestic manufacturing employment since the mid-70s, our data suggests that at least in terms of domestic employment the growth performance of Swedish multinations has been worse than the Swedish industty average during the late 1980s. The employment of the domestic units of these highly intemationalized companies has been reduced 80 more rapidly than the total of Swedish manufacturing. On the other hand, Figure 7.2 also cIearly shows the relatively increasing contributions of the largest fInns to the economies of Finland and Norway.

Figure 7.2 Employment in the domestic business units of the 30 largest firms rela­ tive to total employment in domestic manufacturing and mining, 1974-90, %.

Finland

% 55 ...------.-----.------.------..,., 30 largest - 20largest

10 largest 40 .: ...... 0 ••• • •••" " ••• ' ••••••••••~ ••••••••••••.;... ••• '

• I '...... • , ... ~...... , . 3 5 u o" • • • • • • .,., ....:-...... "'0 '" ". • • • • • I" ,. .• • • • • .,

, ••••••••• I I : · ...... , 30 .:-...... ,- ... '!' •.••' " • ',' •.•.. , •• ",' •• - ....••

25 ..: .. "...... :-...... ;.. -... .;.~_.... .;. .. _.. -.;~ . ..: · , .•... -,...... , ..... 20 .;;..~ .... -...-~.~: ... ~.~~ ...... ' ...... -: ......

15~'~~~~~~~~~~~~~~~ 1974 1978 1982 1986 1990 81

Figure 7.2 continues Norway

% 40 30- largest 35 I ...... 20 largest .. -• •••- .. • 10 largest l'"' ...... 30 . " •• l'*' ~.f. .... -. •• .-.- ~ .. ... too... •• -.. I I ...... ' ...... ,.~ ...... 1 ..--,,,,,, -.. 25 .- ....,...... -;, I" ...... I ".-, .. '-.'. . ' 20 l'"' ...... I ,. " , I •• _ •• _~ ,..

I ...... ,- _ •• - •••••••• I I ' •••• - 1978 1982 1986 1990

Sweden

%

55 30largest 50 .- ...... - 20largest

45 , " .•,. JO largest ..,-_ ...... • -•.. 40 .-. . ."-"-'...... I ••- ••~...... -.:

l'"'•• -...... • ~--.~...... , ...... 35 •• 30 ...... • ...... 'I .... 1IIIi.: ...... _...... t- .•..•..•..•..•.. -•• ".. ••• ••• ...I ...... , 25 f· ...... _.... _...... - .... - .. - .... _ .. _-

1978 1982 1986 1990

Source: The large finn data base of the Nordic Perspective Group and National Accounts 82

When interpreting the growth figures presented in this section, one should keep in mind the caveats given in Chapter 4. There might be some spurious growth in our data due to the changes in the accounting and reporting practices of the companies. Some of the finns in our sample did not report consolidated, corporate level information in the 1970s and early 1980s. Thus, some recorded growth from this period may simply be due to changes in consolidation practices of some finns in our sample. It has only partly been possible to controi this problem. Hence, both the absolute and relative growth rates of the large finns may be somewhat exaggerated. This problem does not, however, concern our data from the early 1980s onwards, and we do not consider it to be severe even when we are considering the whole period since the mid-1970s.

7.2 Internationalization and R&D Activities

Besides the generally increasing share of production in large frrms, the contribution of large corporations to total manufacturing has been growing particularly in the fields where major risk taking is needed. International operations and R&D activity are the most obvious examples.

The foreign operations of the large Nordie companies have been growing faster than their domestic ouput or employment as shown in the previous chapters. Table 7.3 shows the share of foreign employment in per cent of total corporate employment for the 10, 20 and 30 largest frrms of Finland, Norway and Sweden. The share has in· creased for all groups over the period considered.

Wben considering this share for the different subgroups of the 30 largest, it is evident that there is a clear correlation between finn size and the rate of internationalization, also within this small sample of the largest finns. For the 10 largest Swedish finns the share of foreign employment is already ab out two thirds, for the Finnish about ahaIf, and for the Norwegian more than one third. These shares are generally reduced as the finn size decreases 83

Table 7.3 Employment in foreign subsidiaries in per cent of total corporate em­ ployment for the largest firms of the Nordic countries, 1974 and 1990.

Finland Norway Sweden

1974 1990 1974 1990 1974 1990

10largest 13 49 5 35 46 65

20largest 10 42 5 32 43 63

30largest 15 40 5 33 40 62

Source: The Iarge fInn data hase of the Nordic Perspective Group

The role of large fmns as the leaders of internationalization business becomes evident when we compare the foreign employment of these finns to that which is registered as total foreign employment for all domestic manufacturing finns. The information on the entire population of manufacturing fmns is quite hard to come by, but some data on Finland and Sweden exist. The foreign employment in our sample of the 30 largest Finnish companies - about 150 000 - is larger than the total number of employees in all Finnish owned subsidiaries as reported by the Bank of Finland (140 000). In Sweden the 30 largest industrial corporations are responsible for 90-95% of total foreign employment of the Swedish owned companies (cf.BraWlerhjelm, 1990). Hence, it seems fair to conclude that the internationalization of the Nordie industries trans­ lates more or less to the international operations of large fmns.

The same conclusion about the leading role of the large finns applies to R&D acti­ vities. Here our data is quite limited. Table 7.4 only provides information on the re­ search spendings of the five largest industrial corporations (according to employment) 84

in Finland and Norway relative to the industry total of these countries. For comparison the figure on the employment of these five finns in per cent of total domestic manu­ facturing employment is included in the table.

Table 7.4 Employment and R&D in the Slargest firms of Finland and Norway, 1983 and 1987. Per cent of total employment and R&D in domestic manufacturing.

Employment R&D expenditure Country

1983 1987 1983 1987

Finland 17, l 19,7 32,3 33,7

Norway 14,4 22,5 31,3 50, l

Source: The large fmn data base of the Nordie Pespective Group

The relative size of large finns' R&D spending clearly exceeds their contribution to total employment and output in each country. Moreover, the dominance of these com­ panies seems to have increased in recent years. This is in line with fmdings of many other studies (see, e.g., Vuori and Ylä-Anttila, 1987 and references therein). The litera­ ture gives two main explanations for the concentration of R&D investment. First, there are obvious scale economies in R&D to be reaped. Secondly, the failure of capi­ tal markets to diversify the risks associated with R&D leads to expansion of research activities in the large companies, since the risk diversification can, to some extent, be done if the finn is simultaneously engaged in several uncorrelated projects. There is no doubt that both of the se mechanisms have been at work in the Nordic countries. 85

7.3 Is Large Firm Dominance a Small Country Phenomenon?

The previous sections clearly indicate that a rather small number of large fInns holds a dominant position in the manufacturing of Finland, Norway and Sweden, while this to a much small er extent seems to be the case in Denmark. Nevertheless, one may ask whether the dominance of large ftnns is a small country, or a Nordic, phenomenon? This issue is Iooked at in Table 75 and in Figure 7.3 with data from the mid-1980s.

Table 7.5 Industrial concentration ratios of selected countries, 1985.

A verage size of Employment of top 20 top 20 frrms ftnns as a per cent of Country (numheT of employees) total industri al emp- loyment USA 219748 19 Japan 72240 10 Gennany 114542 26 UK 108010 35 France 81 381 33 Canada 26414 22 Switzerland 36602 60 Holland 47783 95 Denmark 6049 22 Finland 12095 47 Norway 6 194 35 Sweden 31690 69

Sources: Scherer - Ross (1990) and the large frrm data hase of the Nordic Perspective Group 86

Figure 7.3 Aggregate concentration rados and country size, 1985*

Industrial employment (log) 50,000 r------,

20,000 GlUSA. ..O 10,000 -nf e VK 5,000 flin.. o

2,000 0c..1da

o Hollcde 1,000 SWod ..

QDam"1r. °F_d o 500 I- SWiz ..lIIId ONCl'WI)' 200 0 20 40 60 80 100 Employment of top 20 companies (%)

*Aggregate concentration ratio = the share of the 20 largest finns in total manu­ facturing employment. Country size = Total employment in domestic mining and manufacturing.

The pattem envisaged in Table 7.5 and Figure 7.3 is rather clear: The average size of the largest companies is positively correlated with country size (measured by total in­ dustrial employment), where as the aggregate concentration ratio is negative ly corre­ lated with country size. This makes it reasonable to interpret the large finn dominance as a small country phenomenon, but not something which necessarily has to emerge in small countries. The small countries like Switzerland, Holland, Sweden and Finland all clearly show above average shares of leading companies in total industrial employ­ ment. This is not the case for Denmark, while for Norway the share is at the level of that in France and Great Britain.

There are, however, a lot of definitional problems involved, as indicated in Chapter 4. The definition of a corporation might vary considerably across the countries. Japan, 87 showing surprisingly low concentration in the table, is a good example. There are fam­ ily groupings and holding companies having ownership interests in several fInns which are, however, reported as separate companies. In fact these companies might fonn alarge, central ly controlled corporation whose bounderies are not easy to defme from outside. Nevertheless, the data suggests that economies of scale (or other factors related to size) may be pushing large fInns toward being larger relative to their nation­ al industries in small countries than in large (cf. Scherer and Ross, 1990). 88

8. CONCLUDING REMARKS: INDUSTRIAL TRANSFORMATION AND THE ROLE OF LARGE FIRMS

The largest f trins of the Nordie countries hold a significant position in their domestic economies. Furthennore, the largest at one point in time tend to keep their position as a dominant frrms over rather long time periods. Thus, we think a rather small number of frrms may serve as the microeconomic foundation in studies of industri al transfol1l1- ation and macroeconomic growth, also in a long-tenn perspective.

This has been the approach applied in this study, where the main focus has been on the growth, and internationalization of large finns, and the knowledge requirements to modem competitive business. The largest manufacturing corporations seem to have increased their role with respect to all the variables studie d above: employment, out­ put, foreign operations and R&D activities. The contribution of these companies has been particularly important when considering the growing internationalization and knowledge intensity of the Nordie industries. These are the features that industry level studies have indicated as most important factors behind the structural changes of manufacturing industries in these countries (cf. Chapter 2 and the references therein). The large frrms are obviously particularly important in this respect.

This roi e of the largest finns in the current industrial transformation has obviously led to a concentration of economie activities on the Nordie scene. It is uncertain how the macroeconomic effects of this concentration ought to be interpreted. Usually an in­ crease in concentration is expected to hamper aggregate economie growth through efficiency losses. However, for open economies the existence of international com­ petition mayassure the necessary competitive forces even if domestic production is becoming more concentrated. Actually, larger corporations, meaning concentration in a small economy, may be needed if domestic businesses are to stay competitive inter­ nationally. If so, efficiency gains may be expected. 89

The trend of internationalization raises the issue as to how foreign production affects value generation domestically (Swedenborg, 1973, 1979, 1982; Blomström, 1991; Bellak, 1993). The concept of internationalization me ans in some sense that corpor­ ations grow more rapidlyabroad than at home. But, how does this growth pattern af­ fect domestic production? Foreign production may be considered a prerequisite for maintaining and strengthening competitiveness and value creation at home. On the other hand, foreign production may also be regarded as a me ans for fmns to escape production requirements that are set on the domestic scene. Thus, the macroeconomic impacts of internationalization on the Nordic economies are uncertain, revealing an issue that is well advised to examine.

Internationalization of business fmns has not received proper attention in analyzing the competitiveness of fmns, industries or countries. A growing proportion of interna­ tional trade is controlled by large multinationaI corporations. The standard analysis of competitiveness, based on trade theory, neglects the role of multinationaIs. The mobil­ ity of capital, technology and other factors within multinational companies has major implications for policy considerations as indicated, e.g., by Blomström (1991). Blomström (1991) shows that Sweden's share in world exports ofmanufactures de­ c1ined from the mid-1960s (by more than 20 %), while - at the same time - the share of the Swedish multinationals increased significantly (by more than 15 %). The large companies seem to have restored their competitive position by expanding their pro­ duction outside the national borders. The comparative advantages of (internationally operating) fmns and those of countries do not necessarily coincide.

The rapid internationalization of Nordic fmns throughout the 1980s draws attention to how the foreign production by domestic finns affects the economy of their home country. Most of the studies carried out so far have indicated that the domestic mac­ roeconomic impacts of the internationalization of business are mainly positive (see Swedenborg et al., 1988; Swedenborg, 1992; Kinnunen, 1991). 90

It is, however, hard to generalize the effects of foreign direct investments on the home countJ:y's economy, as theOIY is far from providing a priori answers to the many ef­ fects that may occur (Bellak, 1993). Recent studies with the Swedish data also ques­ tion the conclusions of the earlier studies, for instance when it comes to the positive effects on home countJ:y exports. Svensson (1993) fmds a clear substitution effect of Swedish finns' foreign production on domestic exports. At the margin this substitu­ tion is estimated to be quite substantial, and it is mainly caused by third countJ:y ex­ ports of the foreign affiliates.

On the Nordic scene, at least Finland, Sweden and Norway have experienced the rapid intemationalization of domestic business f1nns. In all these countries, the stock of outward investments also outnurnber the stock of inward FDI as far as manufacturing is concemed (Heurn and Ylä-Anttila, 1993). Thus, the issue of how the operations of domestic multinationals affect the home countJ:y's economy, is one important area for future research.

The macroeconomic impacts of the trend in business development, which imply that industri al competence is becoming more important to the competitiveness ~ of finns, may be traced by consulting perspectives on how competitiveness evolves. It is weIl established that the competitiveness of finns cannot be ascribed to the inhouse re­ sources of individual frrrns alone. Competitiveness is created in complex processes in­ volving a broader industri al base (ETLA et al., 1984 and 1987). This is in tradition with Schurnpeterian research, with research on innovation (Rosenberg, 1976; Freeman, 1974; Mansfield, 1968) and with evolutionary economics (Nelson and Winter, 1982). Perroux (1955) makes use of a similar perspective when elaborating on "growth po­ les", as Dahmen (1950; 1989) did when studying Swedish business in the context of "development blocks". Currently, Porter's (1990) perspective on dynamic business in industrial clusters is gaining the most attention On the Nordic scene. As the others, Porter's perspective is based on the assurnption that under certain conditions there is a reciprocal promotion of competitiveness among finns. The behaviour of a f1nn may 91 generate externalities in innovation and in knowledge accumulation which also benefit other fInns, and this is all the more so the more human capabilities and competence are the source of growth.

As Porter considers domestic industrial clusters to be of vital importance in this re­ spect, he also draws the macroeconomic irnplication that dynamic clusters benefIt the competitiveness, or economic development, of nations, even though this connection on an aggregate level is not well developed by Porter. This is, however, the topic of economic theories on endogenous growth (Romer, 1986; Grossman and Helpman, 1991). The economic models of endogenous growth document that long-term macroe­ conomic growth is possible if there are positive economic externalities within the busi­ ness community, or if there is shortage in the supply of one essential production factor (Rebelo, 1990). Such a factor may be industrial competence.

Industrial clusters, development blocks, or whatever they may be labelled, provide in theory the industri al base for such processes of innovation and diffusion of knowl­ edge, i.e. what the general term "externalities" must consist of. If economic compet­ ence is becoming more important as a factor of production for frrms to stay competitive, externalities, or the ability to exploit synergy among frrms in the domes­ tic economy, should also be come more decisive for the economic development of a nation. This is, however, hard to showas there is no weil established way to document the existence or to measure the magnitude of externalities quantitatively.

Nevertheless, accepting this perspective, it might weil be that some frrms mean more to the development of the national economy than others. Industrial competence has to stem from systematic efforts and practical experience from factors that really matter for the effectiveness in business operations. Investments in R&D is of the systematic kind, while participating in international business represents a kind of on-the-job­ training which ought to be of general importance. As it is particularly in R&D and internationalization that the large fInns have been documented to have a dominant 92 role, these fums may be classified as potentially important sources for extemalities in the domestic business communities they are part of.

However, hol ding a position of a possible source for important extemalities within do­ mestic business communities, does not guarantee that frrms actually nurture each other. Beside individual fum capabilities, this depends on labour market mobility, effi­ ciency in the market for corporate controi, and the kinds of business relations between frrms. Rather than nurturing each other, allowing the rate of growth to vary between different frrms and businesses, large frrms may constrain the evolution of domestic challengers. The persistenee and rank stability of large frrms clearly reveals that this is a risk that de serve s attention. Thus, future studies ought to pay more attention to the innovative conditions inherent in the complex interplay between large firms on the one hand and small and medium-sized firms as well as new entries on the other (Braunerhjelm, 1993). This is what constitutes the dynamics of industri al transform­ ation and macroeconomic growth. 93

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List of variables

OBS Year, (Y:lShcx) COUNTRY Name of the country ( DENMARK, FINLAND, NORWA Y,SWEDEN) COMPANY Name of the company EMP Number of employees EMPFOR Number of employees in the foreign operations VA Value added, million local currency units VAFOR Value added in foreign operations, million unit SALES Sales, million unit SALESFOR Sales in foreign operations, million unit EXPORT Value of export, million unit RO Research and development expenditures, million unit INDUSTRY Industry code 3-digit level FOUNDYR Founding year INDEP Corporation legally independent entity SUBS Subsidiary of foreign multinational , binary variable ROFOR Research and development in foreign subsidiaries, million unit RODOM Research and development in home country, million unit PROFIT Corporate profits, gross profits before extraordinary items and taxes, million ASSETS T otal assets according to the balace sheet, million unit

Number of observations

DENMARK 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

EMP 30 30 30 30 - 30 EMPFOR 3 6 5 14 - 30 VA 6 8 18 17 - VAFOR 1 l 2 2 SALES 28 29 30 28 - 30 SALESFOR 3 5 8 17 - RO 2 3 12 8 INDUSTRY 29 29 30 30 - 30 FOUNDYR 28 28 22 25 - 23 INDEP 13 13 16 7 SUBS 13 13 16 7 ROFOR RODOM PRom 23 28 28 26 - ASSETS 27 29 28 26 - APPEND IX 1 continues

Number of observations

FINLAND 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

E:MP 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 EMPFOR 7 6 7 7 6 6 6 7 9 9 10 12 12 30 30 29 30 VA 12 l3 15 15 14 14 14 24 24 22 27 28 27 26 29 22 19 VAFOR SALES 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 SALESFOR 9 9 9 20 24 23 25 19 22 24 26 25 27 26 27 27 30 RO 27 28 28 27 28 27 26 15 INDUSTRY 30 25 30 30 30 30 25 30 29 30 30 30 30 30 30 30 FOUNDYR 24 25 25 24 24 25 25 26 24 11 26 27 - 29 30 30 30 INDEP 30 30 30 30 30 30 30 30 30 14 30 30 24 30 30 30 30 SUBS 30 30 30 30 30 30 30 30 29 - 30 30 ~O 30 30 30 30 ROFOR RODOM PROFIT 13 14 16 15 14 14 15 16 16 17 18 19 30 21 22 22 20 ASSETS 28 28 28 27 28 27 27 25 - 28 - 26 27 27 6

Number of observations

NORWAY

1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

EMP 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 EMPFOR 30 30 30 30 29 30 30 30 30 30 30 30 30 30 30 30 30 VA 30 29 29 29 29 29 29 29 29 30 30 30 30 30 30 30 30 VAFOR SALES 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 SALESFOR 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 RO 24 25 26 26 27 26 27 2 25 27 27 27 · 26 1 1 INDUSTRY . 6 6 30 30 - FOUNDYR 30 30 30 30 30 30 30 30 30 30 30 30 · 30 30 30 30 INDEP 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 SUBS 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 ROFOR RODOM 24 25 26 26 27 26 27 2 25 27 27 27 · 26 1 22 - PROFIT 29 29 29 29 29 30 30 30 30 30 30 30 30 30 30 30 30 ASSETS 30 29 29 29 30 30 30 30 30 30 30 30 30 30 30 30 30 APPENDIX 1 continues

Number of observations

SWEDEN

1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

EMP 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 EMPFOR 30 29 30 30 28 30 30 30 30 30 30 30 30 30 30 30 29 VA 15 20 24 23 21 24 23 24 26 26 26 23 21 24 20 22 19 VAFOR 20 - SALES 27 30 30 30 29 30 30 30 30 30 30 30 30 30 30 30 30 SALESFOR 28 30 30 29 29 30 30 29 30 30 29 30 30 30 30 30 30 RO 28 9 7 6 23 8 8 9 10 14 14 15 22 17 15 15 12 INDUSTRY 27 30 30 29 30 30 30 30 30 30 30 30 30 28 30 30 FOUNDYR l I I I l l I l I I I l l l INDEP SUBS ROFOR RODOM PROFIT 27 29 30 30 28 30 30 30 30 30 30 30 30 30 30 28 28 ASSETS 27 30 30 30 29 30 30 30 30 30 30 30 30 30 30 30 30 APPENDIX 2: World-wide Employment of the Largest firm

DENMARK

T otal mining and SHARE OF THE INDUSTRY TOTAL % YEAR manufacturing 10 20 30 1974 514000 12,7 18,6 22,8 1975 471 000 - -- 1976 474000 - - - 1977 471 000 - - - 1978 468000 - - - 1979 472000 14,9 21,8 26,7 1980 464000 - - - 1981 448000 - - - 1982 447000 -- - 1983 449000 16,1 23,0 27,7 1984 473000 -- - 1985 502000 - - - 1986 521 000 - - - 1987 515000 16,1 23,5 28,4 1988 505000 - - - 1989 504000 - - - 1990 504000 19,5 27,1 31,8 APPENDIX 2 continues

FINLAND

, Total mining and SHARE OF THE INDUSTRY TOTAL % YEAR manufacturing 10 20 30 1974 561 000 21,8 33,2 40.3 1975 555000 23,7 35,6 42,5 1976 550000 24,9 37, l 44,2 1977 534000 24,1 35,8 42,8 1978 517000 24,3 36, l 43,5 1979 534000 25,0 37,0 45, l 1980 558000 26,0 38,0 46,0 1981 556000 26,2 38,4 46,3 1982 545000 28,3 41,0 48,3 1983 533000 28,3 41, l 48,7 1984 527000 29,8 44,8 53,0 1985 519000 30,7 46,6 55, l 1986 502000 33,6 51,7 60,0 1987 493000 34,2 52,7 61,2 1988 477000 39,3 60,2 69,1 1989 466000 40,8 64,0 75,1 1990 463000 42,0 68,0 80,2 APPENDIX 2 continues

NORWAY

Total mining and SHARE OF THE INDUSTRY TOTAL % YEAR manufacturing 10 20 30 1974 387000 17,2 24,2 28,8 1975 384000 17,9 25,1 29,6 1976 385000 18,0 25,4 30,0 1977 394000 18,3 25,3 29,8 1978 389000 18,9 26,1 30,6 1979 386000 19, l 26,7 31,3 1980 386000 19,7 27,5 32,3 1981 383000 21,4 29,7 34,6 1982 371 000 22,0 30,5 35,6 1983 350000 20,9 29,7 35,2 1984 349000 21,6 31,3 36,6 1985 354000 25,1 35,0 40,1 1986 358000 30,0 38,6 43,7 1987 357000 30,4 38,7 43,5 1988 340000 35,6 43,7 48,8 1989 319000 37,4 47,0 52,7 1990 323000 37,1 46,6 52,5 APPENDIX 2 continues

SWEDEN

Total mining and SHARE OF THE INDUSTRY TOTAL % YEAR manufacturing 10 20 30 1974 1013 000 44,4 57,4 65,3 1975 1023000 48,0 63,0 71,1 1976 1021 000 47,8 63,0 71,6 1977 985000 46,6 62,8 72,2 1978 957000 47,4 63,5 72,8 1979 961 000 48,2 63,8 73,4 1980 982000 50,2 65,5 74,5 1981 951 000 54,3 69,9 78,0 1982 912000 53,1 68,5 76,4 1983 893000 52,3 67, l 75,0 1984 899000 53,2 69,2 76,5 1985 920000 52,8 68,9 76,4 1986 923000 57,9 76,9 87,0 1987 942000 59,4 78,2 85,8 1988 975000 71,4 92,7 100,8 1989 951 000 75,0 95,6 103,1 1990 951 000 76,4 97,9 105,4 APPENDIX 3: Domestic Employment of the Largest Firm

DENMARK

T otal mining and SHARE OF THE INDUSTRY TOTAL % YEAR manufacturing 10 20 30 1974 514000 - - - 1975 471 000 - - - 1976 474000 - - - 1977 471 000 - -- 1978 468000 - -- 1979 472 000 - - - 1980 464000 - - - 1981 448000 - -- 1982 447000 - - - 1983 449000 - - - 1984 473000 - - - 1985 502000 - - - 1986 521 000 - - - 1987 515000 - - - 1988 505000 - - - 1989 504000 - - - 1990 504000 11,5 17, l 21, l APPENDIX 3 continues

FINLAND

Total mining and SHARE OF THE INDUSTRY TOTAL % YEAR manufacturing 10 20 30 1974 561 000 - - - 1975 555000 - - - 1976 550000 - - - 1977 534000 - - - 1978 517000 - -- 1979 534000 - -- 1980 558000 -- - 1981 556000 - - - 1982 545000 - -- 1983 533000 - -- 1984 527000 -- - 1985 519000 --- 1986 502000 - -- 1987 493000 25,3 39,6 46,6 1988 477000 24,8 40,3 46,9 1989 466000 23,4 39, l 46,9 1990 463000 21,4 39,0 49,0 APPENDIX 3 continues

NORWAY

Total mining and SHARE OF THE INDUSTRY TOTAL % YEAR manufacturing 10 20 30 1974 387000 16,2 23,0 27,4 1975 384000 16,7 23,4 27,8 1976 385000 16,7 23,6 27,9 1977 394000 16,8 23,2 27,6 1978 389000 17,2 23,8 27,7 1979 386000 17,5 24,6 28,7 1980 386000 17,7 25,0 29,3 1981 383000 18,4 26,3 30,3 1982 371 000 17,9 25,8 30,2 1983 350000 16,9 24,8 29,7 1984 349000 16,9 26,2 30,3 1985 354000 18,7 27,8 31,7 1986 358000 23,1 30,7 34,5 1987 357000 22,0 29,7 33,0 1988 340000 25,8 32,1 36,1 1989 319000 25,3 33,6 37,6 1990 323000 23,9 31,6 35,4 APPENDIX 3 continues

SWEDEN

T otal mining and SHARE OF THE INDUSTRY TOTAL % YEAR manufacturing 10 20 30 1974 1013 000 23,9 32,7 39,2 1975 1023000 26,7 37,7 43,7 1976 1021 000 26,6 36,9 43,8 1977 985000 26,9 37,1 44,2 1978 957000 26,2 35,5 41,8 1979 961000 26,3 35,3 43,0 1980 982000 27,1 36,0 43,2 1981 951000 29,5 39,0 45,2 1982 912000 29,6 37,5 43,3 1983 893000 28,3 37,4 42,8 1984 899000 28,3 38,1 43,0 1985 920000 28,2 37,4 42,5 1986 923000 29,2 42,3 48,9 1987 942000 27,7 38,7 43,6 1988 975000 27,9 38,9 43,7 1989 951 000 28,7 39,2 42,3 1990 951 000 26,7 36,8 39,6 APPENDIX 4: Mean Employment of the Largest Firms. Number of employees

DENMARK

MEANEMPLOYMENT YEAR 10 20 30 1974 6529 4787 3898 1975 -- - 1976 -- - 1977 - -- 1978 6991 5090 4170 1979 -- - 1980 - - - 1981 - - - 1982 - - - 1983 7241 5162 4150 1984 -- - 1985 --- 1986 - - - 1987 8291 6049 4881 1988 - -- 1989 - - - 1990 9835 6845 5349 APPENDIX 4 continues

FINLAND

MEAN EMPLOYMENT YEAR 10 20 30 1974 12205 9299 7530 1975 13145 9873 7857 1976 13716 10197 8109 1977 12841 9562 7623 1978 12573 9340 7499 1979 13342 9873 8018 1980 14510 10610 8555 1981 14544 10669 8581 1982 15414 11181 8779 1983 15069 10955 8653 1984 15721 11810 9304 1985 15911 12095 9524 1986 16865 12973 10033 1987 16856 13000 10059 1988 18767 14365 10987 1989 19022 14922 11687 1990 19447 15748 12377 APPENDIX 4 continues

NORWAY

MEAN EMPLOYMENT YEAR 10 20 30 1974 6641 4686 3715 1975 6883 4809 3794 1976 6943 4883 3849 1977 7197 4984 3915 1978 7348 5072 3968 1979 7368 5143 4013 1980 7610 5305 4151 1981 8213 5677 4413 1982 8172 5654 4401 1983 7318 5205 4104 1984 7554 5453 4225 1985 8872 6194 4730 1986 10752 6907 5209 1987 10847 6905 5180 1988 12098 7422 5526 1989 11926 7488 5605 1990 11971 7531 5652 APPENDIX 4 continues

SWEDEN

MEANEMPLOYMENT YEAR 10 20 30 1974 44963 29064 22038 1975 49134 32217 24240 1976 48774 32146 24350 1977 45908 30936 23704 1978 45402 30384 23226 1979 46279 30662 23502 1980 49294 32160 24398 1981 51622 33219 24740 1982 48436 31215 23211 1983 46663 29961 22310 1984 47830 31094 22931 1985 48540 31690 23443 1986 53455 35484 26769 1987 55991 36824 26924 1988 69635 45182 32761 1989 71315 . 45470 32674 1990 72658 46532 33298